You really meant well. You really meant to keep an eye on your taxes last year. You meant to pencil out a projection and know by December how big your refund would be, so you could have plenty of time to select the chrome turbo-jet gas grill that whopping check would buy.
Yet the year went by and your good intentions went the way of the diet and the workout program. Now you’ve taken that first pass at your taxes and the only grilling to come out of your tax return is the one your spouse will give you when you explain how that cruise you had planned this year will be in the Tunnel of Love at the state fair.
Despair not. Things may not be as bad as you think. A few deductions might be out there for you yet.
IRAs. You may be able to make a deductible IRA contribution for 2005. You have until April 17, 2006 to make IRA contributions for 2005. You can deduct at least part of a contribution of up to $4,000 for yourself ($4,500 if you reached age 50 during 2005) if:
1. You had at least that much “earned income” last year. “Earned” income means wage and self-employment income.
2. You didn’t participate in a pension or profit-sharing plan at work, or
3. You did participate in a pension plan and your adjusted gross income (AGI) is no more than $80,000 ($60,000 if you are single filer).
4. You participated in a pension plan, but your spouse worked and did not, and your joint AGI is less than $160,000.
Self-employed? If you have self-employment (schedule C) income, you can set up a “SEP-IRA” for 2005 as late as April 17, 2006. You can do this even if your schedule C is part-time and you participate in a pension plan at your full-time job. If you qualify, you may be able to contribute as much as 25% of your schedule C income to the SEP. Contact your bank or broker to find out how to open the account. If you extend your return, you have until the extended due date to actually make the contribution. But be careful – if you have employees, you have to cut them in, too.
Harvesting the Tax Breaks
While it’s good to cut your taxes by buying an IRA deduction, it’s even better to get a tax break just for being YOU. Don’t forget these items:
The 401(k) and IRA deferral credit can give you an additional tax credit – a dollar-for-dollar reduction in taxes – for IRA contributions and amounts you elect to put into your 401(k) plan at work. This is available for joint filers with adjusted gross income (AGI) up to $50,000 and single filers with AGI up to $25,000. This doesn’t reduce any other 401(k) or IRA tax breaks.
The Earned Income Tax Credit is a widely-missed tax credit. If your AGI is below $35,000, and it’s from wages or self-employment, you might qualify for this tax break. You can learn more at www.clintonfoundation.org.
The Credit for the Elderly and the Disabled applies to taxpayers who are 65 or retired due to disability. You may qualify if you are married with adjusted gross income up to $25,000, or are single with AGI up to $17,500.
Education Credits are available if you have a child in college. You may qualify if you had 2005 AGI up to $107,000 on a joint return, or $53,000 on a single return. If your income is too high, your dependent might be able to qualify.
All of these credits have limits and qualification rules, so check them out at www.irs.gov or call your tax advisor to see if they might help you.
A version of this post is scheduled for the April 2006 issue of the Des Moines Register publication 50 Plus Lifestyles.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to