How to Save on Your Taxes and Other Last-Minute Tax Tips

How to Save on Your Taxes and Other Last-Minute Tax Tips

After two years of extended deadlines, the April tax return is back — and fast approaching.

The pandemic resulted in delays in submission deadlines that stretched into late spring or even summer. But this year, the filing date for most taxpayers is April 18, just over a week away.

Even so, there may still be a few things you can do to reduce your tax burden. Here are some steps to consider.

There’s still time to pay into a traditional individual retirement account for tax year 2021 and make a deduction — if you qualify. IRA contributions for 2021 can be made by the application deadline — up to $6,000 for an individual and $7,000 for those who were 50 years of age or older at the end of 2021. However, your deduction may be limited depending on your income and whether you have a company pension plan.

Self-employed people can save more of their income by contributing to a simplified employee retirement plan, or SEP IRA. The contribution limit for a 2021 SEP IRA is 25 percent of your compensation or $58,000, whichever is lower. (You may also have more time to contribute to a SEP IRA. If you get an extension until October 15 to file your tax return, you must contribute by then.)

The deadline for contributions to a Roth IRA for 2021 is also April 18 – but since you don’t get a tax deduction for putting money into a Roth, it won’t lower your tax bill.

You may also be able to reduce your taxable income by paying into a Health Savings Account (HSA) by the filing deadline. To be eligible, you must be covered by a health insurance plan that meets certain criteria, such as: B. A high deductible (minimum $1,400 for one person for 2021), said John Larson, vice president of benefit solutions at Conduent, a business services company.

If you qualify, the 2021 contribution limit is $3,600 for individuals and $7,200 for families. People 55 and older can contribute an additional $1,000.

If you only had eligible health insurance for part of 2021, the maximum contribution you can make may be less, said Rita Assaf, vice president of retirement at Fidelity Investments. For example, someone enrolled in a qualifying health plan for six months could deposit up to $1,800 — half the maximum.

But there is an option you can use to contribute more to your HSA, known as the “last month” rule, Ms Assaf said. Here’s how it works: If you are eligible to contribute to an HSA on the first day of the last month of the tax year – say 1 December 2021 – you are considered eligible for the full year and can contribute up to the maximum amount. But there’s a catch: You must keep your high-deductible health insurance for the next 12 months. If you lose qualifying health insurance before the end of 2022, you’ll owe taxes and possibly a penalty on the additional premium, the IRS says.

Money is contributed to an HSA tax free. It’s also tax-free when withdrawn to pay eligible medical expenses, and can be invested and grown without federal taxes. The accounts go with you if you change employers.

At the state level, some states do not offer the same tax breaks. According to an HSA provider, Lively, California and New Jersey tax HSA contributions, while New Hampshire and Tennessee tax HSA income, including interest income and investment gains.

And for those of you who haven’t started calculating your taxes yet and now find you can’t make the tax deadline, you can request an automatic extension. This gives you until October 15th to prepare and submit your return.

“You should extend if you don’t have the information to prepare a complete and accurate statement,” said Henry Grzes, senior manager of tax practice and ethics at the American Institute of Certified Public Accountants.

But a file extension doesn’t give you more time to pay. So you must estimate your debt as best you can and pay the government by April 18th.

Some people may be worried about not being able to pay, so don’t submit a return. But that creates more problems, including penalties for non-filing, Mr Grzes said. You should file and pay what you can, he said, and then contact the IRS to discuss an installment plan to pay off the balance after your return is processed. To estimate what you owe, he said, review last year’s tax return or, if you’re using do-it-yourself tax software, type in the information you have to get an approximate amount .

The Justice Department recently warned taxpayers to exercise caution when choosing a tax professional, noting that it has cracked down on numerous dishonest preparers over the past year. Red flags include creators asking you to sign a blank statement or refusing to sign for a return they have prepared (known as a “ghost return”), failing to have your return inspected before submitting it, or providing your refund in a way that you are not clear about. The IRS provides tips on choosing a preparer on its website and provides a directory of approved preparers that can be searched by zip code.

The Internal Revenue Service is offering free walk-in assistance—no appointment required—on Saturday, April 9 at its Taxpayer Assistance Centers in numerous cities.

Free tax prep options include IRS Free File and the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. You can search the IRS website for locations.

If you are self-employed or otherwise have to pay quarterly estimated taxes, the first payment deadline is April 18th. You can use Form 1040-ES to calculate how much you need to pay.