A Closer Look at the Benefits of a Delayed Tax Day
Tax Day Delayed
As you likely know, the Treasury Department pushed back the deadline to file federal taxes for the first time in almost sixty years. Tax Day, normally April 15, will be July 15 this year.
This move was intended to help Americans struggling from economic fallout due to the coronavirus, and many have taken advantage of the extension. Tax returns received in April were down by 21 million from 2019, roughly a 15% decrease.
The IRS has had its hands full this spring distributing stimulus checks and many of its offices have been closed because of the virus. As a result, despite receiving lower numbers of tax returns, the IRS is behind in processing tax filings and distributing returns.
It’s Not too Late to Make an IRA Contribution
The deadline to make a last-minute IRA, or individual retirement account contribution, has also been extended to July 15. Contributing to an IRA is one way to save money for retirement, lower a tax bill and potentially receive a higher refund.
The nice thing about an IRA is that the money contributed to it is not taxed until funds are withdrawn from the account. Income tax can be deferred up to $6,000 in an IRA, or $7,000 for those 50 years old and above. Plus, married couples can open two accounts and each person can receive the tax break.
However, for people with 401(k) plans at work and a modified adjusted gross income between $64,000 and $74,000, the IRA tax deduction is phased out. “Be careful that you don’t accidentally over-contribute based on your income level and whether you’ve previously made a contribution for 2019,” advises Arielle Minicozzi, a financial planner.
Good Deals on Stocks and a Tax Break
IRAs can invest in stocks, bonds, and mutual funds. Individuals can choose different types of assets for their IRAs based on how much risk they’re willing to expose themselves to.
Since the coronavirus-induced market downturn, some think that stocks are trading for discounted values and may be good for IRAs. “Now is a great time to make an IRA contribution to both get a tax benefit as well as to take advantage of a volatile stock market,” says Eric Simonson, a financial planner. Even if the market continues to lag, an IRA is about the long-term, so short-term stock market volatility may not make or break the investment.
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