How to save on your taxes and other last-minute tax tips
After two years of extended delays, April tax filing is back — and fast approaching.
The pandemic has caused delays in filing deadlines that have extended 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 steps you can take to reduce your tax bill. Here are some steps to consider.
There’s still time to contribute to a traditional Individual Retirement Account for the 2021 tax year and qualify for a deduction – if you qualify. IRA contributions for 2021 can be made up to the filing deadline – up to $6,000 for an individual and $7,000 for people aged 50 or over at the end of 2021. Your deduction however, depending on your income and whether you have a workplace pension plan.
Self-employed people can save more of their income by contributing to a Simplified Employee Retirement Plan, or SEP IRA. contribution limit for a SEP IRA for 2021 is 25% of your compensation or $58,000 – whichever is less. (You may also have more time to contribute to a SEP IRA. If you get an extension until October 15 to file your taxes, you have until then to make a contribution.)
The deadline for contributing to a Roth IRA for 2021 is also April 18 — but since you don’t get a tax deduction for depositing money into a Roth, it won’t lower your tax bill.
You can also reduce your taxable income by contributing to a health savings account, or HSA, on the filing deadline. To be eligible, you must be covered by a health plan that meets specific criteria, such as a high deductible (at least $1,400 for an individual for 2021), said John Larson, vice president of benefits solutions. social services at Conduent, a business services company.
If you qualify, the contribution limit for 2021 is $3,600 for an individual and $7,200 for families. People 55 and over can contribute an additional $1,000.
If you had eligible health coverage for only part of 2021, the maximum contribution you can make may be lower, said Rita Assaf, vice president of retirement at Fidelity Investments. For example, someone enrolled in an eligible health plan for six months could contribute up to $1,800, or half the maximum.
But there is an option that allows you 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 December 1, 2021 – you are considered eligible for the entire year and can contribute until maximum. But there’s a catch: you have to keep your high-deductible health coverage for the next 12 months. If you lose eligible health coverage before the end of 2022, you will owe taxes and possibly a penalty on the additional contribution, the taxman says.
The 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 grow sheltered from federal taxes. Accounts accompany you if you change employers.
At the state level, a few states do not offer the same tax breaks. California and New Jersey tax HSA dues, while New Hampshire and Tennessee tax HSA income, including interest earned and investment gains, according to an HSA provider. Animated.
And for those of you who haven’t started doing your taxes and now realize you can’t meet the tax deadline, you can request an automatic extension. This gives you until October 15 to prepare and submit your return.
“You’ll want to extend if you don’t have the information necessary to prepare a complete and accurate return,” said Henry Grzes, senior tax practice and ethics officer at the American Institute of Certified Public Accountants.
But a file extension does not give you more time to pay. So you’ll need to make your best estimate of what you might owe and pay the government before April 18.
Some people may fear that they will not be able to pay, so they do not submit a declaration. But it creates more problems, including penalties for not reporting, Mr. Grzes said. You should deposit and pay what you can, he said, then contact the IRS to discuss a installment plan to pay off any balance after your return is processed. To estimate what you owe, he said, check last year’s return or, if you’re using do-it-yourself tax software, enter whatever information you have to get an approximate amount.
How can I find a reputable tax preparer?
The Ministry of Justice savvy taxpayers recently to exercise caution when choosing a tax professional, noting that he has taken action against many dishonest preparers over the past year. Red flags include preparers asking you to sign a blank declaration or refuse to sign a statement they have prepared (called “ghost” return), won’t let you review your return before you file it, or deposit your refund in a way that’s not clear to you. Theirs offers advice to choose a trainer on its website and offers a directory of graduate trainers which can be searched by postal code.
Where can I get free help with tax questions?
The Internal Revenue Service offers free walk-in help – without an appointment – at its Taxpayer Assistance Centers in many cities around SaturdayApril 9. The office will not prepare returns, but taxpayers can get their questions answered and receive advice.
Free tax preparation options include IRS Free File and volunteer tax assistance and tax counseling programs for seniors. You can search the IRS website for locations.
What is the deadline for the first estimated tax payment of 2022?
If you are self-employed or otherwise required to pay estimated quarterly taxes, the earliest payment due date is April 18. You can use Form 1040-ES to find out how much to pay.
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