We've turned the calendar page to 2013. There's not much you
can do to impact your 2012 taxable income. But there is
One of the few maneuvers that can add to your
involves contributions to a traditional IRA.
You can contribute to an IRA as long as you have earned income
equal to or greater than your contribution. You can contribute up
to April 15. There's no extension, even if you have a filing
Your maximum contribution for 2012 can be $5,000. If you are
age 50 or older, you can contribute up to an additional $1,000,
the catch-up contribution.
For 2013, the limits are higher: $5,500, plus as much as
another $1,000 catch-up contribution.
Sounds simple. But the rules about what counts as earned
income can be tricky.
"The rules often reflect political compromises, and decisions
based on what's needed to balance the federal budget rather than
what a nontax professional might expect," said Ed Slott, editor
Don't forget that you can still contribute to an IRA if you
participate in a workplace plan such as a 401(k) or a SEP
But your eligibility to deduct your contribution does hinge on
whether you or your spouse uses a workplace plan, your tax filing
status and your income.
If you are married and filing jointly, your 2012 contribution
is fully deductible even if you belong to, say, a 401(k) plan so
long as your modified adjusted gross income is below $92,000.
The deduction phases out between $92,000 and $112,000.
The 2013 phase-out range is $95,000 to $115,000.
Another common misperception is what constitutes earned income
-- at least as far as the IRS is concerned, regarding IRA
Following are categories of income and which types do and
don't constitute deductible earned income in the eyes of the
Wages, salaries, commissions, professional fees, bonuses and
other amounts received for personal services shown in Box 1 of a
Form W-2 count.
Not qualified: pension and annuity income. Also, income from
an IRA, Roth IRA, 401(k) account and Social Security
Taxable alimony and/or maintenance payments count.
Not qualified: child support.
Scholarship or fellowship payments if included in Box 1 of a
Not qualified: disability payments and unemployment
"Many people are surprised that unemployment compensation does
not count," Slott said. "They point out that it is related to
work -- you can collect only if you worked. And collecting it
often requires steps that seem like work. But the bottom line is
that it does not meet the IRS requirement."
Net self-employment income.
Not qualified: rental income unless it is the taxpayer's
Net self-employment income even if it is not subject to
Not qualified: Income from interest, dividend and capital
gain. Also excluded is certain income from partnerships and S
Accrued vacation pay.
Not qualified: deferred compensation.
And once you reach the year in which you turn 70-1/2, you can
no longer kick into an IRA.