Tax Attic: Contribution cut-off date

When we flip the calendar to April, beyond seeing April Fool’s Day come and go, it means several things to tax professionals like yours truly. First, all of us are acutely aware that April 17 is now really right around the corner. Returns already in our offices have to be finished and time has to be made to accommodate clients who have yet to come in. It’s a delicate juggling act, to say the least, with the coming first 17 days of April full of action. Second, April 17 is the cut-off date for making 2017 contributions to a number of tax advantageous programs. Let’s go over those programs that allow us to make a contribution all of the way until April 17, 2018 and still deduct it on our 2017 tax return. At the top of the list has to be making a contribution to a Traditional or Roth Individual Retirement Account (IRA). Taxpayers under the age of 50 are allowed to put up to $5,500 into a Traditional or Roth IRA or in any combination not exceeding the $5,500. Taxpayers age 50 or older are allowed to put up to $6,500 in any combination again to the Traditional or Roth. Remember that taxpayers age 70 ½ or older are not allowed to make a contribution during the years they turn age 70 ½. In other words, if you have to take a Required Minimum Distribution (RMD), you can’t make a contribution.

It’s very important to note that there are different income phase-out rules in place for the Roth and Traditional IRAs. Married taxpayers wishing to contribute to a Roth may not have joint income in excess of $196,000 while single/head of household taxpayers can’t have income in excess of $133,000 and married filing separate taxpayers can’t exceed $10,000 in income. These are set in-stone amounts. Taxpayers with income in excess of these amounts that make a Roth contribution are subject to a 6% excess contributions penalty if the amount is not withdrawn by April 17, the due date of this year’s tax return.

The phase-outs for the Traditional IRA are dependent upon whether the taxpayer already actively participates in an employer retirement plan or if the taxpayer’s spouse participates in a plan. For a married taxpayer that is covered at work by a retirement plan, no deduction is allowed when income exceeds $119,000. For single /head of household filers and covered at work, no deduction starts at $72,000 of income and for married filing separate filers, no deduction starts at $10,000. Of course, it’s important to remember that even if no deduction is allowed for a Traditional IRA, a contribution can still be made. File a Form 8606 documenting the contribution and the fact that the contribution is non-deductible. When distributions are later taken from the IRA, the non-deductible amount may be recovered tax-free. But the calculation of that non-taxable recovery amount will have to be the subject of another article.

Second on the list might be making a contribution to a Health Savings Account (HSA). The HSA model is becoming more popular every year. Next week, we will look at the rules that apply to the HSA model. In the meantime, have you noticed what is going on in downtown Rockford? First, the Corner Bar re-build is going full blast. The outside walls are going up so we can see the dimensions. It takes a little imagination but I can hardly wait to be eating a dinner on the outside deck. Next, Glik’s building remodel is making progress. It’s a total inside and outside remodel and will be a nice update to a noticeable corner of downtown. There are also a number of additions and remodels that other downtown businesses have coming up in the next few months. Keep an eye out for the dumpsters. It’s a sure thing something good is going to happen. This is Jerry Coon signing off.

 

Jerry Coon is an Enrolled Agent.

He owns Action Tax Service on Northland Dr in Rockford.

Contact Jerry at www.actiontaxservice.com