We all do it; we procrastinate on anything having to do with taxes. Unfortunately we often hesitate to act on even things that can save us big bucks in the end. Well, here’s one area where you can act now, and see the benefits within the year.
We most often think about doing our tax-free investing of dollars into IRA, Health Savings, College Savings or other qualified accounts just when the clock is ticking down the minutes to April 15th each year. But working with your tax professional to identify good ways to protect more of your hard-earned dollars early in the tax year is a great idea.
Here are a few reasons why it’s good to put your money in sooner rather than later:
- Tax-free compounding. The longer your tax-free money is in your account, the higher your gains before you start using that account for retirement income, medical or education expenses.
- Eligibility rules and those pertaining to different types of IRAs are complicated. For example, if you invest in, but find out eventually that you do not qualify for a Roth IRA, or you decide you want the tax-free benefits of a traditional IRA, you have until April 15th 2014 (or October 15th, with an extension) to make a change. It’s definitely easier to do it when you’re not in a rush!
- Double-checking the record keeping. When you make your tax-deferred contribution to a qualified account, make sure to identify the year (in your check memo section) for which the contribution is being made. Also include the payment voucher, and check that the date is correct. Check subsequent statements of your investment to make sure it is credited correctly. Making your contribution early will give you time to make any corrections needed, and avoid potential problems with the IRS down the road.
As with many tax issues, working with a tax professional can save you time and money that is better kept in your wallet!
For help with these and other tax issues, call Martha Miller, a Litchfield County, Connecticut tax attorney, admitted to practice in CT, NY, and before the US Tax Court at 860-435-4666. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.