The deadline for filing taxes is just around the corner. Thanks to the 15th falling on a Sunday and Emancipation Day falling on the 16th, taxes this year are due on April 17. For the procrastinators among us, the extra two days offer a refreshing reprieve.
It also gives us two more days to make sure we are taking all the deductions we’re entitled to. So as you fire up TurboTax this weekend, consider these five last-minute tax moves.
1. IRA Contributions — It’s Not Too Late!
If you qualify, a deductible IRA can shield up to $5,000 ($6,000 if you are 50 or older) from income tax. Like a 401k, your money grows tax deferred until you withdraw the money during retirement. While we are well into 2012, you can still make a 2011 contribution to an IRA so long as you do so by the tax-filing deadline. So it’s not too late to open an IRA with your favorite broker and make a 2011 contribution. The same rule also applies to Roth IRAs.
2. Did you Contribute Too Much?
As great as an IRA can be for tax planning and retirement savings, there is something to be mindful of: You can be penalized if you make an excess IRA contribution. This occurs if you do one of the following:
• Contribute more than the contribution limit.
• Make a regular IRA contribution to a traditional IRA at age 70½ or older.
• Make an improper rollover contribution to an IRA.
To avoid the 6 percent penalty, you have until the due date of your taxes (including any extensions) to withdraw the excess contributions for any income earned on the excess contribution.
3. Don’t Forget the Earned Income Tax Credit
The EITC is designed for individuals and families who did not earn a lot of income. The amount of the credit depends on your income, filing status, and family size. What makes the credit so powerful is that it’s a refundable tax credit, meaning it can actually reduce your tax liability below zero, resulting in a refund back to the taxpayer.
But here’s the kicker: One in five taxpayers who qualify for the EITC fail to claim it. So if you think you may qualify, make sure to consult a tax professional before filing your return.
4. Open a SEP IRA
If you have self-employed income, you may be able to contribute up to $49,000 for 2011 in a SEP IRA. In fact, the higher contribution limits are one of many great tax perks for the self-employed. Keep in mind that the $49,000 limit covers all of your retirement contributions, including 401k and IRA accounts. So if you contributed to any of these other retirement vehicles, your maximum SEP IRA contribution will be lower.
5. Double Check Your Deductions
If you itemize your deductions, check your records for deductions you may have missed. This year my wife and I would have missed a charitable contribution if I hadn’t checked our credit card statement. As hard as we try to keep our tax-related documentation organized, it’s easy to miss a few deductions here and there. So double-check your records before finalizing your returns.
And next year, don’t procrastinate! At least that’s what I tell myself every year.
DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.