6 Last-Minute Tax Tips
Remember to fund your IRA, pay for your Roth conversion and take advantage of these additional tax breaks.
Tax Day is fast approaching, but it's not quite as close as you might think. This year you have until Tuesday, April 17, to file your 2011 federal and state income tax returns. The two-day extension from the usual deadline comes because April 15 falls on a Sunday, and the following day is Emancipation Day in Washington, D.C., which, under federal law, is treated like a federal holiday.
While you're contemplating how to spend your two extra days, here are some things to note for your 2011 tax return:
1. Remember your Roth. In 2010 you were allowed to convert a regular IRA to a Roth IRA while postponing the tax due on the Roth, with half of that tax due in 2011 and half due in 2012. You'll need to pay the first half this year. And, make a note: The rest will be due next year.
2. Fund your IRA. You have until April 17 to contribute up to $5,000 ($6,000 for people age 50 and up) tax-free to a traditional IRA. If you're in the 25 percent tax bracket, a $5,000 contribution will save you $1,250 on this year's taxes. The money will grow tax-free until you withdraw it when you're at least 59 1/2. The amount you can contribute depends on whether you have a retirement plan through your employer and how much money you make - up to $56,000 for an individual and $90,000 for a married couple. Kiplinger explains more here, and you can read more about IRAs here .
3. Take advantage of an education opportunity. The American Opportunity Tax Credit is a tax break for education that allows you to claim a credit for up to $2,500 for qualified college tuition and related expenses, up to $1,000 of which can take the form of a tax refund. The credit was supposed to end in 2010, according to bankrate.com, but has been extended through 2012.
4. Declare online sales. This year people who did a lot of business online should have received a new kind of 1099 form, similar to the forms taxpayers receive from companies that pay them interest or dividends. Payment processors such as credit card companies and PayPal sent a 1099-K to people who did more than $20,000 in business or who had more than 200 transactions online, so they can report the income on their tax forms. Marketwatch.com notes that someone who sold a baseball card collection on eBay or received a PayPal payment for concert tickets won't get a 1099-K.
[Related: 5 Apps to Organize Expenses at Tax Time]
5. Jobless qualify for a break. If you've been unemployed and unable to pay your tax bill, the government is giving you a break on the penalties -- but not the interest. Under the Fresh Start program, someone who has been unemployed for at least 30 consecutive days during 2011 or until April 17, 2012, has until Oct. 15 to pay taxes due without owing a penalty. A business owner whose income fell 25 percent or more in 2011 is entitled to the same relief. The relief is not available for single filers who earn more than $100,000 a year or married people earning more than $200,000, says marketwatch.com.
6. Put it off. If your tax paperwork proves too complicated, you can always file for an automatic extension, which gives you until Oct. 15 to file your taxes. Remember, though, that the taxes you owe are still due by April 17; if you wait until October to pay you will owe penalties and interest. You can download an extension form and everything else you need at the IRS website.