While options to accelerate deductions and defer income become more limited after Dec. 31, you can still take advantage of a few to help lower the previous year’s taxes. You can still save more money and avoid some penalties with these tax tips. Start getting documents ready in January if you do not plan on filing until March or April. Review finances to determine whether you can take advantage of some methods to defer income. Business tax attorneys and tax attorneys for individuals at France Law share some tax tips with you here, to help minimize your tax liability and maximize a tax refund.
If you held off funding your retirement account last year, you could fund traditional and Roth IRAs until the tax filing due date. You can fund Keogh and SEP accounts until Oct. 15, 2022; however, the sooner you fund for the past year, the sooner you start tax-free compounding.
If you make a contribution that is deductible, you can lower your tax bill. When the money compounds, it is tax-deferred. The maximum contribution to IRA accounts is $6,000 unless you are 50 or older by the end of the year, in which case, it is $7,000. If you are self-employed, you can contribute up to $58,000 for Keogh and SEP accounts. Keep in mind that Roth IRA contributions are not deductible, but when you withdraw the money, it is tax-free. However, you should take your tax status into consideration. If you are in a higher tax bracket now, contributing to a Roth IRA could benefit you if you will be in a lower tax bracket when you retire.
If you do not pay all of the past year’s tax liability, it will charge an underpayment penalty. You must pay 100 percent of the previous year’s taxes if you make under $150,000 and 110 percent if you make more than $150,000 in order to avoid the underpayment penalty. However, if you make an estimated payment before Jan. 15, you can eliminate the penalty, but only for the fourth quarter.
You might also save some money if most of your income came in after Aug. 31 and you file Form 2210: Underpayment of Estimated Tax. Keep in mind that you do not want to pay too much – the IRS does not pay interest on any overpayments. You’d be better off putting any overpayments into a retirement account or your stock portfolio.
Home Office Tax Deductions
If you are self-employed, be sure to take the home office tax deduction. You do have to use the space only for an office. As long as you legitimately qualify for the deduction, it should not show as a red flag. With the home office deduction, you can write off certain expenses for the portion of your home you use for the office, including utilities, insurance, rent, housekeeping, and even upgrades to your home.
Itemize Tax Deductions
While it is easier to take the standard deduction, you could save a ton of money if you itemize, especially if you own a home, are self-employed, or live in an area with high taxes. The qualified deductions must add up to more than the standard deduction. In 2021, it will be $12,550 for most single people and $25,100 for most married couples. If you have a lot of medical expenses – more than 7.5 percent of your gross income for 2021 – you can deduct the medical expenses.
Most people do not forget this one, but some do not realize the amount of savings they could get by entering your dependents’ tax identification numbers on your tax return. However, if you are divorced, keep in mind that only one of you can claim the children. Some divorced couples will alternate who can claim children each year, and some agree that one parent will claim one child and the other claims the other child.
If you had a new baby and did not file for the baby’s social security number right away, you can file an extension to file taxes rather than file without the child’s social security number.
Contact Tax Attorneys
To ensure that you have maximized your tax deductions, contact tax attorneys and business tax attorneys at France Law for a consultation. We look forward to working with you.