Are you facing a tax liability on your 2016 return? There’s little you can do now to reduce the tax, but there’s at least one option at your disposal. If you qualify, Traditional IRA contributions made as late as the tax return due date — April 18 — may be wholly or partially deductible for 2016. In fact, if you act quickly enough, you can even use a tax refund to fund the contribution!
For starters, you can contribute up to $5,500 annually to a Traditional IRA ($6,500 if you’re age 50 or over). The contribution limit is indexed annually for inflation, but it remains the same in 2017. The deduction is phased out at certain income levels for active participants in employer-provided retirement plans.
The phase-out range for single filers who are active plan participants is between $61,000 and $71,000 of modified adjusted gross income (MAGI) and between $98,000 and $118,000 for joint filers. If only one spouse is an active participant, the phase-out range is between $184,000 and $194,000 of MAGI. These dollar figures are also indexed annually for inflation. There are slight increases for the 2017 tax year.
For example, a single filer, age 35, who has a MAGI of $66,000 for 2016 and participates in an employer’s 401(k) plan can deduct 50% of a $5,500 contribution, or $2,750.
You have until the tax return due date to make a deductible contribution. In some cases, deductions are approved where a taxpayer claimed a contribution on a tax return, obtained a refund, and then used the refund to actually make the IRA contribution by the deadline.
So if you are looking for a last-minute way to reduce your taxable income for 2016, consider a contribution to a Traditional IRA. There is still time, if you qualify.
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© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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