Don’t look now, but tax season is right around the corner. In just a week or two you’ll start getting your W-2 forms from your employer and will be able to file your income tax return for last year. While I do prepare my own return, I’ll be the first to admit that I’m no tax expert. However there is still one thing you can do to lower your taxable income and increase your refund for 2011.
Fund your retirement account!
It’s that easy. Did you know that right up until tax day itself (April 15th, in case you forgot) you are able to make IRA contributions for the prior year? So if you have a Traditional (pre-tax) IRA and haven’t maxed out your contributions for 2011 you still have time. Even better, if you don’t have an IRA yet, you can still open one now and will be able to fully fund it for 2011 until April 15th. That’s $5000 you can lower your taxable income by ($6000 if you happen to be over 50). If lowering your taxable income by just a little more is the difference between two tax brackets it could be the difference in keeping hundreds of dollars in your pockets!
I’d even recommend making your contributions for the prior year while you can regardless of your tax worries. The contribution limits are use it or lose it. You never know how your financial situation is going to change in the year ahead. You could get a big raise at work, take a higher paying job, or just pay down some debt to free up extra cash. In any event maxing out your 2012 contribution may become easier than you thought as the year moves on. So by continuing to make 2011 contributions while you can you make sure you’ll be able to stock away the most cash possible for your future.