October is here, finally bringing with it colorful leaves and cooler Fall weather. OK, not so much here in Central Texas, where temperatures insist on hovering in the mid-90s, around 10 degrees above normal.
Photo of a colorful park in Mississauga, Ontario, Canada by Paul Bica courtesy Flickr Creative Commons.
Much more certain than the weather during this first full month of Autumn is the key tax deadline of Oct. 15.
That date is, of course, when procrastinators must finally send in their prior year’s tax return. It’s also the due date for other important, and tax-related, retirement moves.
Here’s a look at these four tax tasks to take care of on or before Oct. 15.
1. File your extended 1040
You and around 10 million other taxpayers made a good move back in April in getting six more month to file your tax returns. It’s always better to take extra time and do it right.
But now you’re heading into the same panic situation. Don’t. Get to work on your tax return this weekend so that you’re not freaking out on Oct. 15.
If you don’t meet this ultimate filing deadline, the IRS will start assessing late- or non-filing penalties based on any tax that you didn’t pay when you got your extension.
The Weekly Tax Tips that have running since April 15, as well as the Daily Tax Tips posted during the main filing season (check the end of the January tax tips page for links to the other months’ tips) can help you finish this job.
If your adjusted gross income is $60,000 or less, you can still use the Internal Revenue Service’s Free File website to send in your tax return.
And don’t forget about your state tax returns. If you got extra time to file that paperwork, too, it’s likely also due Oct. 15. Don’t miss that deadline either.
2. Open and contribute to a SEP
If you’re self-employed, even just part-time to supplement your regular paycheck, and you got an extension to file your return, you still have time to contribute to a SEP retirement plan. Heck, you still have time to set up a SEP account if you don’t already have one.
Personal confession here: most years I get an extension to file my taxes mainly to give me more time to come up with my own self-employment retirement plan contribution amount.
Not only is this a good way to add to add to a retirement nest egg, contributions to self-employed retirement plans are an above-the-line deduction. And I much prefer putting those dollars in my future retired pockets than paying them to the U.S. Treasury.
3. Put money into a Keogh
The same filing and retirement contribution extension option for a SEP also applies to a Keogh retirement plan.
The good thing about a Keogh, which also is known as an H.R. 10 plan, is that you can put more of your self-employment earnings into it.
The bad things about a Keogh are that (1) it takes more administrative work, and (2) if you don’t already have one, you’re out of luck when it comes to contributing now for the prior tax year.
In order to put money into a Keogh for last tax year, you must have established the Keogh by the previous Dec. 31st. If you did that and got an extension to file your taxes, then you can contribute to your Keogh for the 2014 tax year by this Oct. 15.
But if you didn’t open a Keogh last year, even though you’re on extension you can’t set one up now and use it to reduce your 2014 taxes. A Keogh established now, however, can work to your extended benefit next year.
And let’s be honest. You’ll be in this same situation in 2016.
4. Recharacterize your Roth IRA conversion
It seemed like a good idea last year when you converted your traditional IRA to a Roth IRA. Now, with the stock market tanking, not so much.
The good news is that you get a do-over as long as you take it by Oct. 15. You can undo, or what the IRS calls recharacterize, your IRA conversion by Oct. 15 of the following year. This deadline has no connection with an extension to file other than being on the same date.
A common reason to reverse a Roth conversion is because the retirement account lost money since the change. That means that in addition to the Roth being worth less, you owe income tax on the converted amount — remember, you must pay tax on Roth money in order to be able to take it and earnings out tax-free in retirement — that evaporated when the market dropped.
A recharacterization can erase that Roth conversion tax bill.
More taxes for all of October: That’s a lot to do by Oct. 15, but these four options are just a few of the tax moves to consider this month.
You also can adjust your withholding and, if you itemize, set up a bunching strategy.
You can find more about these and other October Tax Moves under the heading of the same name over in the ol’ blog’s right column.
