As the tax filing season approaches, individuals and business owners are faced with the daunting task of organizing numerous financial documents, including W-2s, 1099s, and statements from Social Security and pensions. A common concern arises: have I paid the correct amount in taxes? While many believe that tax planning must conclude by December 31, several strategies remain available right up to the filing deadline, which typically occurs on or before April 15.
Strategies to consider before you file
If you have begun using tax software and find the figures disappointing, or if you prefer to optimize your returns, consider these four effective strategies that can still be employed before submitting your tax return.
Contributing to a traditional IRA
Individuals with earned income, which typically includes wages or self-employment earnings, may find contributing to a Traditional IRA to be a beneficial strategy. The ability to deduct this contribution primarily hinges on your Modified Adjusted Gross Income (MAGI) and whether you or your spouse participate in a workplace retirement plan.
It is crucial to understand that income from Social Security, pensions, or investments does not qualify as earned income. This approach is especially advantageous for those who are:
- Employed full-time or part-time
- Engaged in consulting work
- Married to an individual who is still earning wages
For the year 2026, individuals can contribute up to $4,300 to their IRA, while the family contribution limit is set at $8,550.
Understanding the spousal IRA contribution
For couples filing a joint return, one spouse’s earnings can facilitate contributions to a Spousal IRA for the other spouse, who may not be employed. This arrangement relies on the household having sufficient earned income. It is essential to confirm if your spouse is participating in a workplace retirement plan and to verify the applicable Modified Adjusted Gross Income (MAGI).
Utilizing health savings accounts (HSA)
For individuals not yet enrolled in Medicare and who hold a high-deductible health plan (HDHP), contributing to a health savings account (HSA) may be a strategic choice. Unlike IRAs, eligibility to contribute to an HSA does not require earned income, making it accessible for many individuals.
An HSA provides several tax advantages:
- Tax-deductible contributions
- Tax-deferred growth
- Tax-free withdrawals for qualified medical expenses
In 2026, the contribution limit for individuals is $4,300, while families may contribute up to $8,550. Additionally, individuals aged 55 or older can add an extra $1,000 to their contributions, provided they have separate HSAs.
Exploring the SEP-IRA
For those who have transitioned from full-time employment to freelance or consulting roles, contributing to a Simplified Employee Pension (SEP) IRA can be a viable option. This retirement account offers higher contribution limits compared to a Traditional IRA, making it an attractive choice for many.
Your contribution limit, however, is determined by your net earnings and several other factors. It is prudent to consult a tax professional to assess your specific circumstances before proceeding with a SEP-IRA contribution.
Ensuring accurate withholdings
As taxpayers prepare to file their returns, assessing whether they have underpaid throughout the year is crucial. Underpayment can result in unexpected bills or penalties. If underpayment is suspected, adjusting withholdings or estimated payments for the upcoming year may be necessary. Withholdings can be modified from various sources, including:
- W-4 form for employee withholdings
- IRA distributions
- Social Security payments
- Pension distributions
- Annuity payments
No one prefers overpaying taxes, but receiving an unexpected bill in April can also cause distress.
Long-term tax planning
While last-minute tax strategies may appear attractive, adopting a long-term approach to taxes is often more beneficial. Rather than fixating on the current tax year, it is essential to consider how your financial decisions can affect future tax situations. The objective should be to foster flexibility, reduce future liabilities, and make informed choices with sufficient time to evaluate their broader implications.
Analyzing several years of tax returns can assist in developing a customized strategy that adapts to personal life changes and shifting tax regulations. Regularly revising your long-term tax plan tends to offer greater advantages than concentrating on a single year-end tactic.
Considerations for your tax strategy
As you refine your tax strategy, it is important to reflect on several key questions:
- Am I eligible to contribute to a Health Savings Account (HSA), Individual Retirement Account (IRA), or Simplified Employee Pension (SEP)?
- Was my tax bill or refund smaller than expected, indicating a potential need to adjust my withholdings?
- Did I experience an unexpected surge in income that may be recurring?