Hire an Expert
Every year, millions of Americans go it alone on their taxes. Many of them do not get audited or pay too much in taxes. However, some make mistakes and pay more than they need to.
For example, you may be able to benefit from tax deductions that you don’t claim. Or, you may be able to take deductions for a qualified home office or rental properties.
An online tax calculator is a great tool to help you estimate the amount of tax you will owe or the amount of your refund. These calculators mostly offer professional or semi-professional advice. They will take into consideration the most common rules and deductions that are available to you.
Some will even suggest timing of income and deductions in order to lower your tax bill even more. Some discuss tax planning and how you can incorporate tax planning strategies to lower your tax bill.
However, tax planning can be complex. You should be wary of tax calculators that make it seem like you can reduce your tax bill with a single click, i.e., by investing in a tax-avoidance investment.
Also, tax laws change every year. So if a tax calculation tool does not get the latest information on changes and updates to the tax laws annually, then it is not providing you with reliable tax advice.
Get Your Paperwork Together
According to the IRS, procrastinators wait until the very last minute to file their tax returns.
This might sound crazy, especially when you consider that the deadline for electronic filing is April 15, or two full months from now. However, the last minute is exactly what you need to take to deal with some last-minute tax tips and strategies.
”You know you have the money,” says Larry Pon, author of Raising Taxes (and Raising Hell) for Fun and Profit. ”You need to start tracking the money as you spend it.” Once you have all your expenses accounted for, you can subtract them from the net income to arrive at your taxable income.
To help you get started, here are 6 last-minute tax tips.
Make Those Deductions!
Minimize Your Tax Bill
As you hurry to complete an income tax return, remember this: You don’t have to let all of your deductions and tax credits expire unused at the end of the year. They’re deductible or creditable in subsequent years … if you plan ahead and execute a little planning.
Here are six tips for maximizing tax deductions and credits beyond the end of the year.
Give Money to Charity. When you donate to a charity, you can usually deduct the donation on your taxes. But it doesn’t stop there. The donation can be worth more to you if you give to a donor-advised fund. The fund will hold the donation and can invest the money until later. At that time, you can choose to donate a lump sum or a portion to a charity. The benefit to taxpayers is that by the time the donation is transferred to the charity, the value will be a lot higher. At the same time, the value translates into a less expensive, tax-deductible donation.
File a Tax Extension
You can file a six-month tax extension by April 17 in order to avoid a late payment penalty. It will cost you nothing, and most importantly, you will have more time to organize your records and run your tax numbers.
Contribute to a Traditional or Roth IRA
Tax season is upon us, and if you’re like many Americans, the amount you owe in taxes or the amount you will receive back in your refund might surprise you. For most taxpayers, it’s tempting to wait until the last minute to make a contribution to a traditional or Roth IRA. You may find yourself thinking I’ll just wait until I get my tax refund on Friday and make an addition to my retirement account (Roth IRA) then.
But don’t wait until the last minute.
You need to have your money in the account by the end of the year to get the tax deduction. According to the latest stats, Americans save an average of 4% of their annual income, and unless you’re saving a lot more than that, contributing to your IRA will help you put some money away for retirement.
But if you aren’t going to make a contribution to a traditional IRA, you may want to consider a Roth IRA. With a traditional IRA, you get a tax deduction up front, but then pay tax on the amount of your contribution when you retire. With a Roth IRA, you don’t get a tax deduction when you make the contribution, but you don’t pay a penny in taxes when you take money out of your account in retirement.