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You've raised several points. Let me address them as you've raised them.

...We just finished our taxes and got reamed. Why? Because we were trying to save many instead of spending it. But if we would have spent it on deductions, we would have gotten things we wanted for the same as we are handing over to the IRS.

You cannot make money through consumption spending. The only partial benefit you can achieve through spending is if the spending is on something you'd be spending on anyway (such as property taxes on property you hold to meet your living or investment needs) and this spending is deductible on your tax return. But spending just for a deduction means that you will reduce your tax liability by your marginal tax rate times the expense, but the rest of the expense is lost. So if you buy an unneeded widget for $100 that is tax deductible and your marginal tax rate (Fed + State) is 30%, you will reduce your tax bill by $30 but will have wasted $70. If marginal tax rates exceeded 100%, this kind of strategy would make sense.

The other thing that screwed us was that because of the tax change, we were only able to claim $700 for medical even though we spent almost $7,000!!! What bullspit!!! They are actually making it so the middle class CANNOT get ahead.

I assume you're speaking of the Medical Expense itemized deduction, that for those under 65 has gone this year from a threshold of 7.5% to 10% of AGI. In 2016, this will also affect those age 65 and older. If so, then yes, this deduction has increased. I'm not sure, but this change in the tax code may have been one of the ways Congress raises money to pay for the ACA. And frankly, I agree with you that this will disproportionately affect lower income individuals more than high income individuals under 65.

What also makes me mad is that I should have asked if we could have opened up a traditional IRA and contributed before the 15th, could we have used that deduction to offset our payments. We have Roths but not traditionals. But it's been filed, too late now for this year.

As others have mentioned, either you or your husband may make a deductible traditional IRA (TIRA) contribution depending on a couple of factors. If your husband participates in a retirement plan through his work and your Adjusted Gross Income (AGI) is under $95,000, then both of your TIRA contributions will be fully deductible. If your AGI is between $95,000 and $115,000, then he can deduct only part of it. If over $115,000, then he can still make a TIRA contribution, but it will not be deductible. If your AGI is under $178,000, then that part of the TIRA contribution that is not deductible should instead be made to a Roth IRA (RIRA), which begins phasing out at $178,000 and then is fully phased out by an AGI of $188,000 for him and you.

For your deductible TIRA contribution....if your husband participates in a retirement plan at work and you have not made a self-employment retirement plan contribution for the year, then you can make a deductible TIRA contribution up to an AGI of $178,000. If you have made a SE retirement plan contribution, then you too would be limited to an AGI of $95,000 to 115,000, beyond which your TIRA contribution would not be deductible.

You have until April 15 to make this contribution for 2013.

If your husband does not have a retirement plan he or his employer contributes to at his work, then there is no AGI limit for making deductible contributions to his and your TIRA, as long as you have earned income that at least equals your contributions.

If he has a retirement plan at work then you can make a deductible TIRA contribution using the 'spousal IRA' rule, up to an AGI of $178,000, phased out by an AGI of $188,000.

As to a self-employed retirement plan, you can set this up and make contributions to it, with the amount based on your net self employement income minus 1/2 of your self employment tax. For a SEP IRA, the max contribution you can make is 20% of (net SE income - 1/2 SE Tax). This contribution can be made up until Oct 15 of the next year. And the SEP is always deductible to you on your form 1040.

If you wish to contribute more to the SE retirement plan, you can set up a Solo-401(k), to which you make a max contribution of $51,000 or if you don't want the work of a qualified plan (which the solo-401(k) is), you could set up a SIMPLE IRA, to which you would likely be able to contribute more than to a SEP IRA.

But contributing to your IRAs and a SE retirement plan is not an may contribute to both.

And as another here mentioned, retirement plans should not be held simply because they are 'tax shelters'...they should be held because you need to save for your retirement.

I'm reading in between the lines, but it sounds like you're put off because you have a significant tax bill this year. If so, this likely means you're making more income this year than you have in the past. Personally, I've seen this many times, particularly with large unexpected bonuses. Let me offer you this.....taxes are the consequences of making more money. You cannot spend away these additional just pay them. If writing checks to the IRS annoys you, then increase your husbands withholdings at work. Yes, absolutely make contributions to deductible retirement plans. But spending just to deduct will net reduce your income and you'll be financially the worse for it.

Author: "IRA: A Quick Reference Guide"
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