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Turns out, many taxpayers probably aren’t employing all of the strategies they could be in order to reap the greatest benefit.
According to a new study from NerdWallet – which polled more than 2,000 people – there are a number of viable tax strategies that a significant portion of Americans believe are not legal.
Here’s a look at some of the above-board strategies taxpayers may not be aware they can legally employ:
Twenty-six percent of respondents thought making an extra mortgage payment in order to take a bigger deduction during the current tax year was illegal.
You can make your January payment, for example, in December in order to count the interest toward the current year’s deductions.
NerdWallet’s reading was an improvement from 2018, however, when 35 percent of taxpayers assumed the strategy would land them in trouble with the IRS.
Another strategy most people thought was not allowable? Contributing to, or opening, a traditional IRA account after Dec. 31, but before the tax deadline, to reduce taxable income.
Tax contributions to this type of retirement account can be deductible in the year they are made and all the way through the filing deadline on April 15.
Contribution limits for a traditional IRA account rose to $6,000 in 2019, from $5,500 last year.
A full 25 percent of respondents thought this might land them in Uncle Sam’s crosshairs.
The same amount of people thought the method was illegal when polled last year.
Another way to lower your tax bill is by contributing to, or opening, a health savings account (HSA) after Dec. 31, but before the tax deadline (April 15 this year).
An HSA is an account where an individual contributes pretax dollars for the explicit purpose of spending those funds on future medical expenses. HSAs can be used to cover everything from dental, vision and prescription costs to Medicare premiums.
While contributions to this account to include on your 2018 return can be made through April 15, 17 percent of taxpayers thought this wasn’t allowed.
Pushing income off into the next year’s bill helps lower the current year’s liabilities.
There are a number of ways to do this. While it is often difficult for employees to postpone payments, they could ask for yearend bonuses to be held over into the following year, for example.
A self-employed individual might be able to delay billings until as late in the year as possible.
However, while this strategy could benefit you during the current year, it may catch up to you in the following.
Seventeen percent of taxpayers did not know this method was legal.
Some of the other methods a smaller number of taxpayers were unaware they could take advantage of during tax season include: Combining a vacation with a business trip and deducting the unreimbursed business expenses for self-employed individuals (11 percent); taking the home office deduction when your home office is used for functions other than just working (10 percent); and taking a 20 percent deduction on your self-employment income (6 percent).