(NEW YORK) — We are just two weeks out from tax day, April 15.
If you’ve already filed, then way to go! But if you’ve been putting it off, there is one last thing you can still do to lower your taxable income and possibly increase your chances of a better return.
First and foremost, it’s always better to file something.
Even if you need to file an extension, you should file something by April 15, says Andy Phillips, director at The Tax Institute at H&R Block.
“The penalty for failing to file is 10 times greater than the penalty for failing to pay,” Phillips told ABC News’ Good Morning America. “Even if you can’t pay your taxes this year, you’re going to avoid a penalty by filing or completing an extension.”
The IRS will also work with you and offer payment plans if you do have to pay a large amount.
Save now, invest for later
It’s kind of too late for most things like charitable donations to lower your taxable income before you file.
But if you are eligible to contribute to a traditional IRA and have the excess cash, those contributions will be tax deductible.
In fact, you can make contributions up until the due date of the tax return, Phillips said.
A traditional IRA (or individual retirement arrangement) is much like a 401(k), a place where you contribute money to save for retirement. Your deposits can be invested into a mix of stocks, CDs, mutual funds, cash and bonds. These funds are invested, and can grow or shrink along with the market.
The max you can contribute to a traditional IRA for 2018, if you are 49 years old or younger, is $5,500. For 2019, that max contribution number increased to $6,000. There are also income limits on this, so it’s best to check with your accountant or financial adviser before investing.
But even with a cap, retirement investments can lower your taxable income from 2018.
You should also know how a traditional IRA differs from a Roth IRA. A traditional IRA account is tax deferred now, meaning you will have to pay taxes on it when you retire and decide to dip into that money. Money contributed to a Roth IRA has already been taxed, and will not be taxed again when you cash it out in retirement.
Ask yourself: when do you want to pay your taxes? Now or later?
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