Gary Vernon from People's United Bank has some last-minute tax break tips.
Q: Are there any last minute tax breaks available for people who haven't yet filed their 2012 tax returns?
A: It's not too late to qualify for a tax deduction that could save you more than $1,000 on your 2012 tax bill. All you need to do is contribute to an IRA and then watch your tax bill decrease.
Q: How much can someone put into an IRA?
A: Workers can contribute up to $5,000 to an IRA in 2012, or $6,000 if they are age 50 or older. Also, the contribution limits for traditional and Roth IRAs have been increased to $5,500 for tax year 2013. The catch-up contribution stays at $1,000.
Q: How much of a tax break can people expect?
A: The tax savings from making an IRA contribution in April can be enormous. If an individual who is in the 25 percent tax bracket contributes $5,000 to a traditional IRA, $1,250 will be saved on the current tax bill.
Q: What is the timing involved in making a contribution?
A: You have until April 15, 2013, to make an IRA contribution that will reduce the taxes you owe for tax year 2012. You can actually file your tax return claiming a traditional IRA contribution before the money is in the account as long as you manage to make the deposit by the due date of your return.
Q: Are there any potential problems in making a last minute contribution?
A: If you make an IRA contribution in April, make sure to specify which tax year you want the deposit to be applied to. If you don't specify, the financial institution may automatically apply the contribution to the calendar year in which it was received.
On your check in the memo, just make sure you write in '2012.' And in a week or two when the money gets into the account, make sure to follow up with them to make sure they credited it for 2012. There are some brokerages that will say they need the money in house by April 12. Be careful if there are some deadlines imposed, not by the IRS, but by where you are putting the money."
Q: What other advantages does adding to an IRA have?
A: You are able to defer paying income tax on that $5,000 until the money is withdrawn. If you paid those taxes today, that $1,250 is gone. You'd be much better off to have that $1,250 spending the next 30 to 50 years growing. The longer you can defer taxes, the better, especially when you can let it grow and take it out at a much bigger number. And if you drop into the 15 percent tax bracket in retirement, you will only pay $750 in taxes on that $5,000 later when you withdraw it.