You have until 11:59 p.m. on April 15, 2014, to file your 2013 taxes. That's less than a week away. Time is running out, but there are still a handful of things you may be able to do now, in April 2014, to reduce your 2013 taxes. If you qualify, the easiest thing to do would be to fund a deductible traditional IRA for 2013. You have until that April 15 deadline to fund your IRA for 2013, and that deadline holds firm even if you apply for an extension to file your overall tax return.
Do you qualify?
To contribute to a traditional IRA, you must:
- Not have reached age 70-1/2 (or older) by the end of the year for which you are contributing
- Have taxable compensation of at least as much as you are contributing. Alternatively, you may also contribute if you're married and filing jointly and your spouse has sufficient taxable compensation to cover the total of both your contributions.
If you're eligible to contribute, the maximum you can invest in your IRA for 2013 is $5,500 -- or $6,500 if you reached age 50 or better in 2013. The rules on whether you can deduct your contribution are a bit more complicated. The two charts from the IRS below can help you make that determination for your 2013 contribution. The first chart shows the deductibility rules for your traditional IRA if you are not covered by a retirement plan at work, and the second shows the deductibility rules if you are covered by a retirement plan at work.
If you are not covered by a retirement plan at work:
If you are covered by a retirement plan at work:
Are there other ways to save on your 2013 taxes?
If you happen to be self-employed, you have an even longer window to save on your 2013 taxes. The IRS will let you set up and fund a simplified employee pension, or SEP, as late as the due date of your taxes, including extensions. An SEP will let you contribute and deduct up to 25% of your net earnings from self-employment (excluding the value of the contribution itself), up to a maximum of $51,000 for 2013.
Either way, while the IRS offers you some flexibility in funding your retirement accounts for 2013, to take advantage of the tax savings now, your time is running out. If you want the tax savings for 2013, get moving before it's too late.
Take advantage of this little-known tax "loophole"
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Chuck Saletta is a Motley Fool contributor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.