I recently wrote a piece for Magnify Money on how a balance transfer affects your credit score. Did you know that a balance transfer can drop your credit score by about 40 points initially? Does this mean you shouldn’t take advantage of those 0% balance transfer offers?
Tax season is in full swing, and all of those 1099s and W-2s are trickling into our mailboxes. Are you worried about owing additional tax when you file your 2016 return? It may be too late make a charitable donation, pre-pay your next mortgage payment, or make an estimated state income tax payments to increase your itemized deductions for 2016, but you might have a couple options for reducing your 2016 taxable income. The best part about these deductions is, unlike prepaying your mortgage interest, you’ll keep the money in your own pocket.You have until April 18, 2017, to make traditional IRA contributions for 2016, but not beyond that date, even if you file an extension.
Make an IRA contribution
For 2016, you can contribute up to $5,500 ($6,500 if you’re age 50 or older). There are no income limits for contributing to a traditional IRA, but if you have a retirement plan through your employer, your deduction may be limited.
You can also contribute to an IRA for a spouse that isn’t working as long as you file a joint return. The maximum contribution to both spouses’ IRAs can’t exceed your joint taxable income or double the annual IRA limit, whichever is less.
Traditional IRA contributions can be taken as an “above-the-line” deduction on Line 32 of Form 1040. Above-the-line deductions can be valuable because they reduce your adjusted gross income (AGI), so they could potentially increase other tax benefits that are phased out or disallowed altogether based on AGI. Also, you don’t have to itemize to take advantage of above-the-line deductions.
Make a SEP IRA contribution
Self-employed taxpayers and freelancers may be able to put away more money for retirement and benefit from bigger deductions by opening a SEP IRA. The maximum SEP contribution can’t exceed the lesser of 1) 25% of your net profit shown on Schedule C reduced by the deductible portion of your self-employment tax, or 2) $53,000 for the 2016 tax year.
You have until the date you file your return, including extensions, to make SEP contributions. Those contributions can be deducted as an above-the-line deduction on Line 28 of Form 1040.
Make an HSA contribution
If you were covered by an HSA-eligible health insurance plan for 2016, you have until April 18, 2017, to make your contribution for 2016. For 2016, you can contribute up to $3,350 for an individual or $6,750 for a family.
To qualify for an HSA, you must be insured under a high-deductible health plan (HDHP) that is HSA-eligible. An HDHP is any plan with a deductible of at least $1,300 for an individual or $2,600 for a family. And although the average deductible for single coverage is currently $1,478, few insurance plans are actually HSA-eligible. That is because the IRS specifies that except for preventive care, “and HDHP may not provide any benefits for any year until the deductible for that year is satisfied.” So more generous plans that pay for anything other than preventive care benefits before the deductible is met are not HSA-eligible.
If you made contributions through an employer’s pre-tax plan, those contributions have already been deducted from your taxable income in Box 1 of Form W-2, but if you make contributions on your own, you can claim those as an above-the-line deduction on Line 25 of Form 1040.
My recent post for Magnify Money on Trump’s reversal of the FHA mortgage insurance rate cut was picked up by several NBC affiliates. That’s a first for me!For this piece, I spoke to David Reiss, a law professor at the Center for Urban Business Entrepreneurship at Brooklyn Law School, as well as Heather McRae, a loan officer at Chicago Financial Services.
It’s hard to understand why Trump reversed the rate cut, other than reversing on principal a move Obama made during his final days in office. This tidbit was cut out of the final piece, but an independent actuarial report cited in the Financial Status of the FHA Mutual Mortgage Insurance Fund FY 2016 report, dated November 15, 2016, noted that the fund’s capital ratio increased from 2.07% to 2.32% between FY 2015 and FY 2016.
As David Reiss informed me, the fund is required to maintain a 2% capital ratio. It exceeded that level in 2015 and increased in 2016, even after the Obama administration reduced mortgage insurance premiums by 0.50 percent in January of 2016, a move said to save homeowners an average of $900 per year.
Head over to 12News.com to check out the full story. Do you agree with Trump’s move?