Here are a few tips that might help you reduce your 2010 tax bill.
Tip 1: Contribute to a Traditional IRA
One of the easiest last minute deductions is a Traditional IRA contribution. To claim an IRA deduction for 2010, you need to make the deposit by April 15th and state that it's a contribution for 2010 when making the deposit.
The maximum contribution for 2010 is 100% of earned income or $5,000, whichever is less. If you're over 50 you can contribute an additional $1,000 for a total contribution of $6,000. Also, a nonworking spouse can make an IRA contribution as long as you file a joint return and the working spouse has enough earned income to cover the contribution.
Keep in mind that the ability to deduct the contribution will ultimately depend on your filing status, whether you have a retirement plan at work, and your income level.
Tip 2: Contribute to a Health Savings Account
If you have a high deductible health insurance plan you might be eligible to contribute to a health savings account (HSA). Contributions to HSAs are tax-deductible, money inside HSAs isn't taxed, and withdrawals for qualified medical expenses are tax-free. Another nice benefit of HSAs is that you can roll over your account balances to future years.
Individuals can contribute up to $3,050 and families can contribute up to $6,150 for 2010 as long as the plan’s deductible is at least this amount. Just like contributions for IRAs, contributions to HSAs for the 2010 tax year must be made by April 15th.
Tip 3: Contribute to a SEP IRA
If you’re a business owner, there's still time to set up and fund a Simplified Employee Pension (SEP) IRA. The maximum contribution for 2010 is 25% of your wages up to a maximum contribution of $49,000, so this has the potential to be a huge deduction.
If you have employees you will have to contribute the same percentage to their SEP IRA accounts as you contribute to yours, so keep this in mind when deciding how much to contribute. Contributions to SEPs can be made by your tax-filing deadline including extensions.
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