December 31st came and went, so now it is time to file your 2012 tax return. You may have plugged the numbers into TurboTax and not liked what you found. Is there any way to reduce your tax liability for 2012 now that we are in 2013? Yes there is! IRA contributions can be made for the previous year until tax filing day of the current year You can contribute $5,000 ($6,000 if 50 or older) to a Traditional IRA or Roth IRA for 2012 until April 15th, 2013. This means that if you forgot to contribute to your IRA, you can still do so. Should I contribute to a Traditional or Roth IRA? If you want to reduce your tax liability for 2012, then you will need to contribute to a Traditional IRA. Remember, Traditional IRA contributions are tax deductible, while Roth IRA contributions are not, however money will come out of the Roth IRA tax free in retirement. If you are in a low tax bracket, are getting a refund, or your income is too high for a Traditional IRA, you should consider contributing to a Roth IRA. Are there income limitations for contributing to a Traditional IRA? Yes there are, and they are complicated. If you have a retirement plan at work, such as a 401(k), then the Adjusted Gross Income (AGI) limitations are: Single: $58,000 Married Filing Jointly: $92,000 Married Filing Separately: $10,000 (The IRS really dislikes MFS filers... sorry...) If you do NOT have a retirement plan at work, and neither does your spouse, there are no income limitations. If you do not have a retirement plan at work, but your spouse DOES have one, then the AGI limitation is $173,000. Client Case Study I have a client that files Married Filing Jointly. They had around $150,000 AGI for 2012, and the husband has a 401(k) through his employer. The wife is a stay at home mom with limited earnings for 2012. The wife can contribute $6,000 (is over age 50) to a Traditional IRA, however the husband can't. They will save about $1,649 in taxes for 2012 by contributing $6,000 to her Traditional IRA. You must have earned income to contribute to an IRA. However, a spouse without income can use their spouses earnings to make contributions! Bonus Tax Credit If you are in a low income tax bracket, you may also be eligible for the Retirement Savers Tax Credit. Depending on your income and filing status, you could get a tax credit of 10% - 50% of your IRA contribution. This means if you contribute $5,000 to a Traditional IRA, you will get the tax deduction, as well as a tax credit worth $500 - $2,500! Click here to learn more about the tax credit. Are you going to be making an IRA contribution for 2012 before April 15th 2013? Feel free to ask questions in the comment section!...(read more)
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As the year draws to a close, many individuals are looking for ways to reduce their tax burden before the deadline for filing their taxes arrives. One of the most effective strategies for reducing taxes is to contribute to a traditional individual retirement account (IRA). An IRA is a type of retirement account that allows individuals to save and invest money in a tax-advantaged way. Traditional IRAs offer tax benefits by allowing individuals to make contributions with pre-tax dollars, meaning that contributions are deducted from taxable income in the year they are made. This can lower an individual's taxable income and potentially reduce their tax bill. For the 2012 tax year, individuals can contribute up to $5,000 to a traditional IRA, or up to $6,000 if they are age 50 or older. These contributions must be made prior to the April 15, 2013 tax deadline in order to count towards the 2012 tax year. Contributing to a traditional IRA not only provides tax benefits, but also helps individuals save for retirement. Any earnings on IRA investments are tax-deferred until the individual begins to withdraw the money in retirement. At that time, withdrawals are taxed as ordinary income. It is important to note that there are limits to the tax benefits associated with traditional IRA contributions. Individuals who are covered by a workplace retirement plan and have modified adjusted gross incomes (MAGI) above certain limits may not be able to deduct their entire IRA contribution. For 2012, the phase-out range for individuals covered by a workplace retirement plan is $58,000 to $68,000 for single taxpayers and $92,000 to $112,000 for married taxpayers filing jointly. Individuals who are not covered by a workplace retirement plan can generally deduct their entire IRA contribution, regardless of their income level. In addition to contributing to a traditional IRA, there are other strategies that can help reduce an individual's tax bill. These may include itemizing deductions, contributing to a health savings account (HSA), or making charitable donations. It is important for individuals to consult with a tax professional or financial advisor to determine the best strategies for their unique financial situation. In conclusion, contributing to a traditional IRA can be a powerful tool for reducing an individual's tax bill for the 2012 tax year. Not only does it provide immediate tax benefits, it also helps individuals save for retirement and potentially grow their retirement nest egg through tax-deferred earnings. As the tax deadline approaches, individuals are encouraged to explore their options for reducing their taxes and maximizing their financial well-being. https://inflationprotection.org/making-a-traditional-ira-contribution-can-help-in-reducing-2012-taxes/?feed_id=85541&_unique_id=64306b83de6a7 #Inflation #Retirement #GoldIRA #Wealth #Investing #BozemanMontana #financialadvisor #FinancialPlanning #MilwaukeeWisconsin #personalfinance #Retirementsaverstaxcredit #RothIRA #traditionalIRA #TraditionalIRA #BozemanMontana #financialadvisor #FinancialPlanning #MilwaukeeWisconsin #personalfinance #Retirementsaverstaxcredit #RothIRA #traditionalIRA
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