Last-minute tax tips

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It’s that time of the year again — tax filing season. Fortunately, even for procrastinators, there is still time to take advantage of some last-minute tax tips.

If you need more time, get an extension
Failing to file your federal tax return on time could result in a failure-to-file penalty. If you don’t think you’ll be able to file your tax return on time, you can file for and obtain an automatic six-month extension by using IRS from 4868. You must file for an extension by the original due date for your return. Individuals whose due date is April 15 would then have until October 2015 to file.

Try to lower your tax bill
While most tax-saving strategies require action prior to the end of the tax year. It’s not too late to try to lower your tax bill by making deductible contributions to a traditional IRA and/or pre-tax contributions to an existing qualified Health Savings Account (HSA). If you’re eligible, you can make contributions to these tax-saving vehicles at any time before your tax return becomes due, not including extensions (for most individuals, by April 15 of the year following the year for which contributions are being made).

For tax year 2014, you may be eligible to contribute up to $5,500 to a traditional IRA as long as you’re under age 701/2 and have earned income. In addition, if you’re age 50 or older, you may be able to make an extra “catch-up” contribution of $1,000. You can make deductible contributions to a traditional IRA if neither you nor your spouse is covered by an employer retirement plan; however, if one of you is covered by an employer plan, eligibility to deduct contributions phases out at higher modified adjusted gross income limits. For existing qualified HSAs, you can contribute up to $3,300 for individual coverage or $8,550 for family coverage.

Use your tax refund wisely
It’s easy to get excited at tax time when you find out you’ll be getting a refund from the IRS — especially if it’s a large sum of money. But instead of purchasing that 60-inch LCD television you’ve had your eye on, you may want to use your tax refund in a more practical way.

Consider the following options:

  • Deposit your refund into a tax-savings vehicle (if you’re eligible), such as a retirement or education savings plan — the IRS even allows direct deposit of refunds into certain types of accounts, such as IRAs and Coverdell education savings accounts.
  • Use your refund to pay down any existing debt you may have, especially if it is in the form of credit-card balances that carry high interest rates.
  • Put your refund toward increasing your cash reserve—it’s a good idea to always have at least three to six months worth of living expenses available in case of an emergency.

Finally, a tax refund is essentially an interest-free loan from you to the IRS. If you find you always end up receiving a large income tax refund, it may be time to adjust your withholding.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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