Last Chance Tax Deductions for 2015 These simple tips can help keep more money in your pocket rather than giving it to Uncle Sam. BY KATHY KRISTOF
There's still time to keep a little more of your income before Uncle Sam collects.
“ The real juicy retirement plan deductions go to people who are self-employed, or have at least some self-employment income.”
Los Angeles (REUTERS) - If you are in the process of preparing your 2015 tax return and find yourself horrified by the amount you owe or disappointed by the paucity of your refund, you have one last chance to cut the bill by paying yourself instead of Uncle Sam.
Whereas most other deductions are off the table as of Dec 31, contributions to Individual Retirement Accounts and Simplified Employee Pension Individual Retirement Accounts, better known as SEP-IRAs are available up until the April 18 tax deadline.
How much you can contribute depends on your age and whether you are a non-working spouse, an employee or have self-employment income. The best opportunities go to the self-employed and partially self-employed. (You may want to keep that in mind the next time someone asks you to moonlight.)
If neither you nor your spouse are covered by an employer plan, you can deduct IRA contributions up to the limits of $5,500 per person ($6,500 for those age 50 and over) in both 2015 and 2016.
Assuming you are in the 25 percent federal income tax bracket, putting in the max will shave your federal tax bill by $1,375. You can save on state income taxes, too.
Normally, you cannot contribute more to an IRA than you earned in a year, but there is an exception for non-working spouses. If one spouse earns at least $5,500 ($6,500 if 50 or older), but your combined "modified adjusted gross income" is less than $98,000, you can get the full deduction for the other spouse's IRA contribution. (Modified adjusted gross income is your AGI, plus any deductions or credits you had subtracted for tuition, student loan interest payments, tax-exempt bond interest and a few other relatively rare deductions, credits and income exclusions.)
You can claim a partial federal income tax deduction for the non-working spouse's contribution if your joint income is below $118,000. Once joint income exceeds that amount, you can contribute to a spousal IRA, but you cannot deduct the contribution.
For singles who are covered by workplace plans, deductions get restricted after earning $61,000 and are eliminated completely once modified adjusted gross income hits $71,000.
The real juicy retirement plan deductions go to people who are self-employed, or have at least some self-employment income. They can contribute up to 25 percent of their self-employment income to a maximum of $53,000 in 2015.
If you have both a day-job and self-employment income, you can contribute up to 25 percent of the self-employment income, in addition to making contributions to your employer plan. The maximum contribution limits are viewed separately, so your maximum annual limit is the sum of the two, adds Mark Luscombe, principal analyst with Wolters Kluwer Tax Accounting.
If you are lucky enough to be raking in serious money from a side gig, the tax savings could be stunning. Consider a hypothetical taxpayer who contributes the maximum $18,000 to his employer plan, while earning $300,000 from his side internet business. He can contribute $53,000 to his SEP and the current 401(k) maximum of $18,000 to the employer plan, Luscombe says.
That combination reduces his taxable income by a whopping $71,000, saving him $24,850 in federal income tax. (That assumes that he is in the nationís top income tax bracket of 35 percent which he most likely would be.)
Better yet, you do not have to make SEP-IRA contributions until your tax filing deadline, including extensions. So if you do not have the cash for a full contribution today, file a form 4868, which is an "Application for Automatic Extension of Time to File." This gives you until October 15th to file your return and fund your SEP-IRA contribution, no questions asked.
Getting more time to file and make SEP-IRA contributions does not mean that you have more time to pay your regular income taxes. Make sure that you do a good estimate of how much you will owe with your 2015 return. Send any balance due in with your extension request to avoid under-payment penalties.
(The author is a Reuters contributor. The opinions expressed are her own.) Editing by Lauren Young, Beth Pinsker and Andrew Hay