You have until April 18 to lower your taxable income. Here's how

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You have until April 18 to lower your taxable income. Here's how

Updated on Dec. 12, 2017: If you’re like most of us, your New Year’s resolutions wither away every year. As you approach Dec. 31, all the grand plans for 2017 — saving for retirement, bolstering a college tuition fund — turn into a pipe dream.

The year is gone. You didn’t contribute like you should have, and you’ve even lost out on some tax breaks. Or have you?

Good news! You’ve still got time to make some last-minute moves in 2018 that'll lower your overall income tax liability for 2017. Seriously. Contributions made to certain investment accounts can be retroactively counted for the outgoing year if you make them before the April tax filing deadline.

How is this possible?

Even though we’re headed into 2017, 2016 isn’t truly over and done — at least not as far as your taxes are concerned. You still have to file them. And you have until Tuesday, April 17 to do so this year. Yup, you're reading that right: April 15 falls on a Sunday in 2018 and is followed by Washington D.C. Emancipation Day, so you have two extra days to get your stuff together.

The Interal Revenue Service lets you make some money moves right up until your tax return is due. And some states also have extended deadlines for certain line items that can lower what you owe them.

As we barrel toward April, consider contributions to these accounts, then deduct them on your 2017 tax returns.

1. Individual retirement accounts

The good thing about IRAs is they’re one of the tax-deferred vehicles that don’t have a deposit cutoff of Dec. 31. So if you had been wanting to contribute more and assumed you were done for 2017, you still have the first quarter of 2018 to add to your account.

For both traditional and Roth IRAs, you’re allowed a maximum annual contribution of $5,500 or, if you’re age 50 or older, $6,500.

But, if you’re looking for a quick tax break, put money into a regular IRA. Its contributions are tax-deductible, while withdrawals are taxed.

Roth IRAs are the other way around. Contributions aren’t tax-deductible, but withdrawals are. Of course, it can make sense to bolster your retirement savings with a late-game contribution no matter which account you hold.

Keep in mind, there are additional contribution limitations on Roth IRAs, depending on your filing status and modified adjusted gross income or MAGI. For instance, if you’re a single head of household and earned $133,000 last year or more, you can’t make Roth IRA contributions.

Married and filing jointly? A MAGI of $196,000 or more excludes you from Roth deposits.

If there’s room in your budget, try to make an IRA contribution push when the tax deadline approaches, and give the maximum amount. Not only will it advance your retirement savings, but it gives the added incentive of a tax break.

2. Health savings accounts

HSAs are a tax-advantaged way to set aside money for out-of-pocket medical expenses when you have a high-deductible health insurance plan.

Just like an IRA or other retirement account, HSAs are funded with pre-tax, gross income dollars, so adding to your account in the 11th hour of tax filing season can significantly lower the amount you owe in taxes.

HSAs do this is two ways: first, through the deduction you make on your tax return, and second, on the qualified expenses the funds will pay for, like office visit fees, prescription medication or equipment.

HSA contribution limits are due to rise this year, but remember, you’re still making contributions for 2017 tax purposes, so you’re allowed to deposit up to $3,400 if you’re a single filer or $6,750 for families.

If you have an HSA and a flexible spending account, make sure not to confuse the two. While you can add to your HSA right up until the tax filing deadline, the FSA contribution cutoff is at the end of the regular calendar year (Dec. 31).

3. Education & college savings plans

There are a couple of ways to save for a college education: Coverdell ESAs and 529 savings plans. Both are tax-advantaged and have contribution deadlines of April 17.

ESAs and 529 plans are custodial trust funds allowing you to name a beneficiary, like a child or grandchild, and save for future college expenses (or in the case of the ESA, some elementary and secondary school costs). Contributions and withdrawals from ESAs and 529 plans are tax-free.

If you have both accounts in place and you’re looking to contribute by the income tax filing deadline, which one do you choose? It all depends on how much money you’re looking to contribute, what your limits are — and, for 529 plans, where you live.

One limitation to Coverdell ESAs is their seemingly low annual contribution cap: $2,000 per year. But you have until April 17 to meet this limit for a tax break.

For 529 plans, federally you have until Dec. 31 to make contributions, which have a pretty nebulous limit. Namely, you can't exceed the amount needed to pay for the beneficiary's education. Given how costly a college education is these days, that limit is pretty high. However, we wouldn’t recommend surpassing $14,000, since anything under that amount is subject to gift tax consequences under IRS rules.

Now over 30 states allow you to deduct 529 plans when you pay them back each year — and seven of those state allow late-year contributions. These states include Georgia, Iowa, Mississippi, Oklahoma, Oregon, South Carolina and Wisconsin. However, check the individual tax rules in your state if you’re making a late-year contribution, since yours may only offer partial tax deductibility and exact extended deadlines vary.

Which account should you choose if you have both? Consider how much you have saved in each and decide which fund you’d like to have a higher balance. The tax benefits are basically the same at deposit and withdrawal. Just make sure to use your savings for educational purposes or you'll get penalized by Uncle Sam.

Which retroactive contributions are excluded?

Some tax-deferred investment accounts have strict end-of-year cutoff dates with no extensions. For instance, if you have a 401(k) or you like to donate to charitable organizations, your deadline to contribute is Dec. 31.

Weighing a retroactive contribution

If you want to make one of these retroactive deposits into a retirement, health or education savings account, don’t overextend your budget and go into debt just for the tax break. As you prepare your tax return, calculate if you’ll owe money, or if you’ll be getting a tax return, and use discretion, since the money you contribute may offset one or both.

And when you fill out your tax return, make sure you clearly list that the retroactive contributions are for 2017. If no year is listed, the IRS won’t count it. (You could still deduct in on your 2018 tax return, but that means waiting another year for the tax benefit.)

If you don't like scrambling during tax season — or you've noticed your retirement accounts are woefully underfunded — set contribution goals for the new year. Bookmark these deadlines (set a calendar alert, if so inclined), so you’re not making retroactive contributions anymore and, instead, looking into your financial future.

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