April 15th is just around the corner, and if you're like many people, chances are your tax preparation is somewhere between mild disarray to frantic, panicked scrambling. There's something about paying taxes that sends many of us back into lazy student mode, waiting until the last minute to work on that report we've always known we are supposed to have completed months ago. But there is hope. There are plenty of cutting-edge tax tips that can save you a lot, even at the last minute.
Some tips to maximize your savings
So put down your shoebox full of receipts, take a deep breath, and read on:
Show up even if you can't pay
Don't go thinking that if you can't pay your taxes, you better not file. You will end up paying a fine anyway, but it will be much higher if you do not file at all.
Please note that the penalty for non-payment of taxes is 0.5% of the amount due. So, if you owe $5,000, you will be charged $25 per month.
On the other hand, if you do not file a return, you will be charged 5% of the tax payable. Instead of $25 per month, you will be fined $250 per month for costs of $5,000.
Don't forget to pay if you get an extension.
Are you requesting a tax extension? You should always deposit a check with the IRS.
The request for an extension does not exempt payment before the April 15th deadline; it simply extends the deadline for filing the tax return by six months. If you do not pay, you will still be liable for this 0.5% penalty.
How to pay if you don't know exactly how much you owe? Make the best guess. There are a variety of free online tax estimating tools that can help you get a basic idea of what you owe, or you can take the best option by allowing a tax professional to do it for you. You can still receive interest and penalties for the remaining balance if you end up not paying enough, but it will be significantly lower than if you don't make the payments in good faith. (If you can afford it, overpay, just to make sure you don't pay a fine.)
Maximize your deductions and credits
One of the enormous mistakes taxpayers make is not taking full advantage of all available deductions and credits. Yes, it will take a little longer, but skipping this step leaves money on the table.
Whether you are a small business owner, an individual, or someone else, you are likely eligible for some sort of deduction. Here are some popular examples:
Are you a low-income individual or couple? You may be eligible for an additional "savers credit" of $2,000 (single) or $4,000 (couple) to contribute to your retirement account.
Did you pay for college or your child? If your income falls under certain rules, you may qualify for a tax credit.
Do you have a child under 13? Certain child care expenses are tax-deductible.
Do you own a house? The interest on your mortgage is tax-deductible.
Maximizing deduction is a great idea for all taxpayers. But the qualifying activity (paying mortgage interest, paying childcare costs) was due to take place last year.
In other words, this info can help you take advantage of deductions and credits for which you are already eligible. But that won't necessarily help you qualify for more.
Contribute to a Traditional IRA
Unfortunately, most tax deduction strategies require you to take action before the end of the calendar year, so it may be too late to write off some of your 2021 tax bills. Even if you're up against the wall, you can still save extra money on your tax return by contributing to a traditional IRA.
If you submit before April 15th and itemize that your contribution is a previous year's contribution, you can deduct up to $6,000 from your 2021 tax return (Up to $7,000 if you are over 50).
Contribute to a health savings account
If you have high-deductible health insurance, you can save additional money by contributing to your Health Savings Account or HSA.
The maximum contribution for the fiscal year 2021 is $3,650 for single coverage and $7,300 for family coverage (with an additional $1,000 in "reimbursement" contributions if you are 55 or older). And the deadline for making these contributions is April 15th, 2021.
In other words, if you can transfer that money to your HSA account before this year's tax filing deadline, you may qualify for an additional tax deduction.
Maximize your 401k
You can also make retroactive contributions to your 401k account that are applied to your tax bill for previous years. Transfer money to 401k and mark it as "previous year's contribution."
Double-check your return
One final tip: don't let last-minute rushing lead you to costly mistakes. Taxi taxpayers make three of the most common mistakes: math errors, incorrect social security numbers, and not fixing signatures and dates on their tax returns.
Bottom Line
Hire a tax expert or use tax software (or check your calculations with a computer). Check everything twice so as to be sure you haven't made any typos or transposed numbers. And make sure the signature and date are complete before clicking "send" or mailing the envelope. Do not carelessly delay repayment.
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