Last-Minute Tax Thoughts

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So here we are, the final countdown to April 15 and the tax deadline. What’s left to do?

Hopefully, not too much. Most tax-reduction strategies had to be complete by the end of December, so at this point the most important thing to do is to get your return sent electronically, or postmarked, by April 15.

And, of course, the return should be triple-checked for mistakes. Experts say the most common tax mistakes involve things like failing to sign the return, getting your Social Security number wrong or math errors.

There is time to make one tax-minimizing move. You have until tomorrow to put money into an IRA for 2009. Some filers qualify for tax deductions on contributions to traditional IRAs. If you put in the maximum of $5,000, you could reduce your tax bill by $1,250, assuming a 25% tax bracket. People aged 50 and older can contribute $6,000, saving $1,500 in taxes at that rate.

Look at IRS Publication 590 to determine if you qualify for a deduction. Key factors are your income and whether you have a retirement plan at work.

Even if you do not qualify for a deduction, funding a traditional IRA can make sense, as taxes on investment gains will be deferred until money is withdrawn. If you can’t deduct contributions to a traditional IRA, you might do better with a Roth IRA. There’s no deduction on Roth contributions, but withdrawals are tax-free. You must fall below certain income limits to fund a Roth — generally, $176,000 for married couples, $120,000 for singles.

A non-deductible IRA contribution won’t help you with your 2009 taxes, of course. But if either type of IRA makes sense for you, you must make the contribution before the tax deadline to count it as last year’s. Miss the deadline and that’s $5,000 or $6,000 less in your IRA. You have another year to make the 2010 contribution.

Can’t get the return done in time? You can get an automatic six-month extension by filing Form 4868.

Remember, though, that an extension to file is not an extension to pay, and tax is still due by the April 15 deadline or you’ll face interest and penalties.

What if you owe money and cannot pay? The IRS can grant a 120-day payment extension if you owe less than $10,000, and it has authority to settle for less than the taxpayer owes.

You can, of course, pay by credit card, and many taxpayers do so to get frequent flyer miles or other perks. But it’s generally not a good idea because you’ll be charged a 2% to 5% fee, which is probably more than the card’s rewards are worth.

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