Situation 1: Did you fund a Flexible Spending Account (FSA) in 2022?

An FSA is a great employer-provided option to put money aside for IN-YEAR health and dependent care expenses while reducing taxable income.  Since these are “use it or lose it” accounts, they can be difficult to forecast and fully use and employees collectively annually forfeit more than $3 Billion in funds that are returned to employers![1]  In recognition of this, many plans offer limited exceptions to the year-end requirement. If you have remaining funds in your FSA account, check with your employer to see if any of the below apply to your situation:

• You may be able to carry over $570 from 2022 to your 2023 balance
• You may be able to spend 2022 dollars through March 15, 2023
  • Items such as eyeglasses, contacts, and over-the counter medications qualify, to name a few, A quick internet search can provide lists of many other eligible items.
  • You may not “stockpile” items, however; quantities purchased may not be higher than would be reasonably used in a year.
• You may be able to submit receipts for 2022 expenses as late as March 31, 2023, if you forgot to submit expenses incurred in 2022 for reimbursement.

Note:  Don’t confuse an FSA account with its distant cousin the Health Savings Account (HSA).  We love the HSA account for many, many reasons and discuss it separately below and will devote a brief to that topic later this year.

Situation 2: Do you qualify for a deductible Individual Retirement Plan (IRA) contribution?

Although not as large as deferral amounts for 401(k) and other employer-provided retirement plans, IRA contributions can still help to prepare for retirement and reduce your taxes.  Contribution limits for 2022 are $6,000 or $7,000 for anyone age 50 or above.

On the plus side, when comparing IRAs to employer-based retirement plans, IRAs allow for contributions to be made up to the tax deadline date.  This means you can review your draft tax return and reduce your tax obligation by making a deductible IRA contribution if you qualify:

• You are not covered by an employer retirement plan
• Your employer has a retirement plan, but you don’t personally contribute to it and you are not “covered” by it [2]
• You are covered by an employer’s retirement plan, but your Modified Adjusted Gross Income (MAGI) is below (fully deductible) or within (partially deductible) the below ranges:

• You are a non-earning spouse of a covered worker, and you file jointly and your MAGI is below $214,000 (benefit partially phases out between $204,000 and $214,000).

Situation 3:  Do you have earned income from self-employment?

Whether you are fully self-employed or are a W-2 employee with supplemental self-employment income, you are eligible to establish a SEP (Simplified Employee Pension) which allows for significant tax-deferred savings. You can establish and contribute to a SEP up to the due date for your business’ tax return.  (Though establishing a SEP is relatively simple, give yourself a couple of days to do the paperwork).

As the “employer” you can contribute up to 25% of your net earnings to your SEP not to exceed $61,000.  If you are also a W-2 employee of a different business, you can contribute to both your employer plan and your SEP.  Contributions to one do not impact the other.[3]

Situation 4: Did you have a high-deductible health plan (HDHP) in 2022 and underfunded an HSA?

As mentioned earlier the Health Savings Account (HSA) is a great tax and savings tool if you qualify by being enrolled in a high-deductible health plan (HDHP).  As a bonus, you can have more than one HSA account (but contributions are totaled across all HSA accounts) and you can contribute as late as tax filing day meaning there is still time to max out that contribution for 2022.

If you are an individual with a solo HDHP, your 2022 contribution is limited to $3,650, or $4,650 if you are 50+.  If you are on a family HDHP (you plus at least one additional family member) you can contribute $7,300, or $8,300 if you are 50+.  Lastly, if both you and your other family member are 50+ you can each contribute the $1,000 catch up contribution for a total of $9,300.  Note that the second family member must open their own HSA account for their $1,000 contribution.

It’s very important to note that the contribution limits INCLUDE any amount that your employer may contribute on your behalf, so be sure to account for that contribution.

While you may be able to take advantage of these last-minute strategies, by collaborating with a financial planner early in the year, you can develop a tax-efficient plan that considers all aspects of your financial situation. This proactive approach can help minimize your tax liability, increase your overall financial well-being, and reduce the stress and hassle of scrambling to prepare your taxes at year end. So don’t wait until the last minute, set up a call with us today. We’re here to help you make better financial decisions and build a path forward.

[1] https://money.com/fsa-contributions-workers-forfeit-money/

[2] This can be tricky as it is impacted by more than your own contributions; see if Box 13 is checked on your form W-2 and/or check with your employer

[3] https://www.chortek.com/sep-ira-and-401k-can-i-contribute-to-both/