If you're saving for retirement or investing for the future, you may qualify for several tax benefits that can help reduce your tax bill. Depending on your situation, you may be eligible for deductions, credits, or both.
Below are some of the most common retirement and investment-related tax benefits available to individual taxpayers.
Traditional IRA Deduction
Contributions you make to a Traditional IRA may be deductible on your tax return. This deduction can reduce your taxable income and lower the amount of tax you owe.
In some cases, the deduction may be limited based on factors such as:
- Your income
- Your filing status
- Whether you or your spouse are covered by a retirement plan at work
When you enter your IRA contribution information, our software will determine whether you're eligible for a deduction and calculate the allowable amount automatically.
Important Note
Contributions to a Roth IRA are not deductible.
However, Roth IRAs may provide tax-free qualified withdrawals in retirement if certain requirements are met.
Retirement Savings Contributions Credit (Saver's Credit)
If you contributed to a qualified retirement account, you may also qualify for the Retirement Savings Contributions Credit, commonly called the Saver's Credit.
Unlike a deduction, a tax credit directly reduces the amount of tax you owe.
Contributions That May Qualify
Eligible contributions include:
- Traditional IRA contributions
- Roth IRA contributions
- Elective deferrals to:
- 401(k) plans
- 403(b) plans
- Governmental 457(b) plans
- SEP plans
- SIMPLE plans
- Voluntary employee contributions to qualified retirement plans, including the Federal Thrift Savings Plan
- Contributions to a 501(c)(18)(D) plan
Eligibility for the Saver's Credit depends on several factors, including:
- Your adjusted gross income (AGI)
- Your filing status
- Your age
- Whether you're a student
- Whether you're claimed as a dependent on another taxpayer's return
Our software will determine your eligibility and complete Form 8880 if you qualify.
Investment Interest Deduction
If you borrowed money to purchase property held for investment, you may be able to deduct the interest paid on that loan as investment interest expense.
Common Examples of Investment Interest
You may qualify for this deduction if you paid interest on:
- Securities purchased through a margin account
- A loan used to purchase stocks or other investments
- A loan used to invest in a partnership, business venture, or other income-producing investment
This deduction is generally limited to your net investment income for the year.
K-1 Investment Interest Information
If you received a Schedule K-1, you may have investment interest information reported on the form.
Look for amounts in the following locations:
Schedule K-1 (Form 1065)
- Box 13, Code G
- Box 20, Code A
- Box 20, Code B
Schedule K-1 (Form 1120-S)
- Box 12, Code G
- Box 17, Code A
- Box 17, Code B
Schedule K-1 (Form 1041)
- Box 14, Code H
If applicable, enter this information as instructed by the software so the deduction can be calculated correctly.
SEP, SIMPLE, and Qualified Plan Contributions
If you're self-employed or a partner in a business, you may be able to deduct contributions made to retirement plans for yourself and your employees.
Eligible plans may include:
- SEP IRA plans
- SIMPLE IRA plans
- SIMPLE 401(k) plans
- Qualified retirement plans
These contributions are generally deductible as a business expense and can provide significant tax savings while helping build retirement savings.
How Our Software Helps
When you enter your retirement and investment information, our software will:
- Determine whether you're eligible for IRA deductions
- Calculate any Saver's Credit available to you
- Identify deductible investment interest expenses
- Compute allowable deductions for SEP, SIMPLE, and qualified plan contributions
- Automatically generate any required forms, including Form 8880
Be sure to enter all retirement contributions, investment interest expenses, and retirement plan information accurately. Our software will determine which credits and deductions apply and calculate them automatically.