John R. Bullis: It’s not too late to cut taxes with IRA contribution

Many people think the time to plan for 2013 year is past, and most of them are correct. The door to almost all tax-saving moves or actions for 2013 closed Dec. 31. However, there are some exceptions regarding IRA contributions (and some retirement plan contributions).

Contributions to traditional (regular) IRAs for the tax year of 2013 can be made as late as April 15 and still be a 2013 deduction if certain rules are met.

IRA contributions can only be done for folks who have enough “earned income” from wages or sole-owner business profits or receive alimony and are younger than age 70½ throughout 2013.

The maximum contribution for 2013 IRAs is $5,500. If you are age 50 before the end of 2013, an extra contribution of $1,000 can be done. Of course, you need earned income of $6,500 to do that deductible contribution. If you only have $4,000 of wages, then the limit in 2013 for you is $4,000.

Suppose you have 2013 wages of $5,500 and you contributed $2,000 to the 2013 IRA during 2013. You can contribute the balance allowable, $3,500, by April 15 and get a full $5,500 deduction on your 2013 return (form 1040, page 1, line 32).

You can guess there are special rules for married couples; of course there are. If one or both of the couple have a retirement plan at work, some contribution limits apply. If their Adjusted Gross Income (AGI) is less than $95,000, they can both be eligible to do contributions. If their AGI is more than that, the deduction is reduced.

IRA contributions include not only the regular, traditional, deductible IRA, but also the nondeductible Roth IRA or the traditional IRA that is nondeductible. If the couple has too much AGI to do full-deductible IRA contributions, maybe they will do Roth IRA or traditional IRA nondeductible. The total contributions to all IRAs are limited to the basic limits, but you can do part of one kind and part of the other kind.

For low-income taxpayers, there is even a special tax credit (like tax withheld from wages). That is figured on form 8880. The Retirement Savings Contributions Credit is claimed on form 1040, page 2, line 50. That credit of up to $1,000 is only if the person is 18 years old as of Dec. 31, 2013, is not a full-time student and is not claimed as a dependent on someone else’s return. The credit is 50 percent of up to $2,000 of retirement contributions to an IRA or the retirement plan where they work.

A SEP-IRA is a different kind of IRA. Self-employed folks with profits can pay into a SEP by Oct. 15 if they get an extension of time to file their return, with much higher potential contributions deductible on the 2013 return.

Did you hear? “A foot is a device for finding furniture in the dark.”

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Co. CPAs.