Instead of re-investing the dividends in the stock I have, I requested and got them to pay me the dividends to supplement my income. I took early retirement and worked part-time in 2006. I did not put any money into IRA for 2006. In my parttime job, I had put ~$4K into a 401K account. My total AGI for 2006 is ~$67K. My preliminary tax return showed that I have to pay taxes for the dividends that I did not pay taxes in 2006. I have to pay a penalty also. In order for me to reduce taxes, can I still put money into IRA for 2006? What is the maximum amount for 55 year old and above? Are there other things I can do to reduce the taxes and hence the penalty I have to pay Uncle Sam?
How Can I Reduce The Tax I Have To Pay For The Dividends I Received In 2006 From Stocks?catch Up On Ira?
Posted on January 29, 2010 by admin, Filed under Answers
By the way, if this stock was held in a non-retirement account, you would have had to pay tax on the dividends every year, reinvested or not.
Yes, you have until 4/17 to get up to $5000 into a traditional IRA to reduce your taxes. Since you were covered by a retirement plan (the 401K), it will not be deductible if you are single. If you are married filing jointly, you would have a deduction. See the work sheet on page 22 of the instructions for form 1040.
Be aware that you can only put “earned income” (money from your part time job) [ $5,000 limit for 2006] into the IRA. You have until April 16, 2007 to do this if the IRA was opened before the end of 2006. For next year you might transfer your investments from stocks to tax-free bonds. Also, consider making estimated quarterly tax payments.
I’m not a financial planner, but here’s my understanding of the IRA rules. You can contribute to an IRA for 2006 up until the due date for the tax return (April 17, 2007). The maximum for someone age 50 or more is $5,000 (or the amount of your earned income, whichever is less). If you are single, you can’t make a deductible contribution to an IRA though if your modified AGI is over $60K though (and only a partial deduction if it’s over $50K). If you are married filing jointly, you can take a full deduction as long as your modified AGI is less than $75K, which it sounds like yours is. So if you are married, kiss your spouse for saving you some taxes.
Oh, and you can also contribute to an IRA for a non-working spouse so that might help more.
Aside from the IRA, I don’t think there’s anything you can do now to reduce your 2006 tax bill. Every other deduction that I know of had to have been done before the end of 2006.