Did you know there are still ways to save on your 2012 taxes? Many people (mistakenly) believe that once the clock strikes midnight on January 1, all tax strategies need to be in place–hardly! Here are two ideas you can take to the bank today (assuming you meet some requirements) to keep your Uncle Sam from digging deeper into your pocket.
Good Old Fashioned IRA
Sit down, kid, and Grandpa OG will tell you a story….
Long before all the Roth IRA hoopla, there was just an”IRA.” Now, to distinguish them, we called one a ‘traditional’ IRA. That’s where your opportunity lies. In 2012, the maximum contribution to an IRA was $5,000 ($6,000 if over age 50). However, you have until whenever you file your taxes, or April 15, whichever is earlier, to contribute to an IRA and count it for your 2012 tax bill. Contributions are tax deductible, which means it lowers your overall income that is taxed (page one of the 1040), thereby reducing your tax. If you were in the 25% bracket, a $5,000 contribution would reduce your income taxes by $1,250. Not exactly dollar-for-dollar, but it’s better than a sharp stick in the eye!
Traditional IRA Deduction Limits
Here’s where the funky requirements come into play: first, as long as you’re under age 70 1/2 and have earned income, you’re eligible to contribute to an IRA. Whether or not it’s deductible will depend on a couple of things:
If you’re covered by a company sponsored plan (401k, etc) then your contribution’s deductibility is phased out as follows:
-Single: $58,000-$68,000 AGI
-Married Joint Filer: $92,000-$112,000
-Married Separate Filer: $0-$10,000
If you not covered by a company plan, then there is no phase out.
Your spouse is covered by a company plan? then your phase out is $173,000-$183,000.
Small Business Owner Plans
If you’re fortunate enough to own your own business, there’s another way for you to cut into your tax bill. It’s called a SEP IRA, which stands for Self-Employed Pension, and its available to most business owners. They work very much like traditional IRA’s, but the limits are much different.
Small business owners would first calculate their profit. The maximum SEP contribution is 25% of that profit number (up to a maximum of $50,000). The tricky part of small business plans? You must offer all your employees the same thing you offer yourself. For example, let’s say your profit is $50,000 and you decide to contribute the maximum, 25%, into your SEP. That’s $12,500–nice job! But, if you have employees, you must contribute 25% of their salaries into a retirement plan for them, too! That can add up quickly–so be careful!
Bonus Tax Savings
In 2012, eligible lower-income taxpayers can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10% depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions as outlined in the Saver’s Credit chart.
So there you have it-a couple of last-last minute tax strategies to lower even last year’s tax bill!
Photo: Philip Taylor
We get tax rebates for energy efficient home improvements, you just have to keep your bills or ask the contractor for one. Many people don’t claim it, which they should because often contractors kind of factor that in and inflate their prices.
Also if your job requires you to wear a uniform and you don’t get the company to wash it for you, you can claim cleaning money. A smaller rebate but still something.
Excellent, Pauline. You would have had to do these things in 2012 (can’t buy energy efficient stuff now for 2012….), but these are great ways to save on 2013’s tax bill.
For the SEP IRA, does that only apply to full-time employees? What if you have a part-time employee working 15-25 hours a week? Or what if it’s a contractor who gets paid per project (i.e. per blog post written, ad hoc web projects, etc.)?
Grr. Tax. There are all sorts of issues here in the UK about collecting taxes from a few multinationals but they bang on about individual taxes. We have similar tax ‘vehicles’ called ISAs and SIPPs within which you can trade, store money and stuff. We need to look at these next year! (That’s next tax year which starts in April…. don’t ask!)
I might consider the SEP for 2013 but not 2012. It is definitely something I need to look into.
Also don’t forget that you can still contribute to an HSA until April 15th for 2012. We were able to get our MAGI down enough with HSA contributions to deduct my husband’s masters degree last year. It saved us around $2K.
Bingo! Sweet addition!
If you have a business, I heard that it would also help if you pay yourself less or hire your family to lessen your tax bill. Not sure about this but will research more.
True to a degree. The IRS will be all over you if you try and pay yourself less than the going wage just to cheat on your taxes. This is also great advice for the current year, but won’t help at all in the prior year like an IRA or SEP contribution.
Augh I have a lot to get together for taxes in the next couple weeks. I’m trying to be more organized this year though so I can quickly see what docs I’m still waiting for and what I have left to do before I can file.
If you had the unfortunate circumstances to go through a foreclosure or short sale last year, you can be grateful that congress extended the mortgage forgiveness act (American Taxpayer Relief Act of 2012) one more year. This keeps the IRS from charging you income tax on the difference between the sale price of your home and your delinquent mortgage amount.
Additionally, deductions for mortgage interest, mortgage insurance premiums and state and local property taxes, are extended. So even if you lost your home in November, you can still deduct any paid mortgage interest and real estate taxes.