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Need cash for IRA deposits? Ask Uncle Sam

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Are you short on cash for an IRA contribution this year? Uncle Sam may give you a “loan.”

Strategy: Use your federal income tax refund to fund an IRA contribution. Simply file your 2011 return early, claiming a deduction for the amount you intend to contribute (assuming you are allowed to make a deductible contribution). When you receive the refund, use it to help fund the IRA contribution you deducted on your return.

Is it legal? Absolutely. The IRS approved this taxpayer-friendly technique years ago. (IRS Revenue Ruling 84-18)  All you have to do is make the IRA deposit by the April 17 deadline.

The IRA contribution limit for the 2011 tax year is $5,000 ($6,000 if age 50 or older). If you actively participate in an employer retirement plan, the deduction phases out for a modified adjusted gross income (MAGI) between $56,000 and $66,000 for single filers; $90,000 and $110,000 for joint filers. If your spouse is the active participant, the phaseout range is between $169,000 and $179,000 of MAGI.

Tip: The contribution limit for 2012 remains at $5,000 ($6,000 if age 50 or older).

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