Worried all tax saving options have been exhausted once the clock struck midnight on New Year’s Eve? Yes, most money-saving options to defer income or claim deductions become a great deal more limited after December 31, there is still a number of things you can do to make the tax-filing season cheaper and hassle free.
These tips will lower your stress while giving you money saving solutions for this year and maybe next:
1. Contribute to Retirement Accounts
There is still time to fund your IRA for the 2011 Tax Year make sure to do so by April 17, 2012. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. If you file an extension however, and you have a Keogh or SEP and you have October 15, 2012 (the filing extension deadline, it allows you more time to put 2011 contributions into those accounts.) This kind of tax savings is both Deductible and Tax Deferred Investing the best kind of bang for your buck.
For 2011, the maximum IRA contribution you can make is $5,000 ($6,000 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2011 is $49,000.
2. Organize your Records
Organization may not save you a big bucks on your taxes, yet it’s important to understand that every penny counts and they add up fairly quickly. Apart from minor savings it can also save you unwanted stress. For most getting all your papers in order come tax time is the biggest hassle. Having a Checklist of items you need to have your return completed goes a long way, things to include on that list are: previous year’s tax return, this year’s W-2s and 1099s, receipts and so on.
*TAX TIME TIPS:
0.Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Make sure to hold onto any tax-related documents, even if they don’t look very important.
0.Collect receipts and information that you have piled up during the year. Generally you should try to sort them out continually through the year, an easy way is in envelopes marked for each type of expense (i.e. Entertainment, Travel etc.)
0.Make sure you know the price you paid for any stocks or funds you have sold. Also knowing the purchase price and date is important, because you need to know the gain or loss on your investment. It is also important to declare as well as whether it is categorized into long term or short term investment. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties.
While it may be easier to take the standard deduction, it may be more worth your while if you itemize, particularly if you are self-employed, own a home or live in a high-tax area. It’s worth the effort when your qualified expenses add up to more than the 2011 standard deduction of $5,800 for singles and $11,600 for married couples filing jointly. Many deductions are well known, such as those for mortgage interest and charitable donations. Taxpayers sometimes overlook miscellaneous expenses, which include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.
Don’t forget Medical Expenses and depending on your industry disallowable deductions may be allowable for you as an exception (these are special instances where consulting a Tax Professional is advised before making that call.)
4. Don’t shy away from a home office deduction
Home office deduction rules have become more lenient to allow more filers to claim this break. People without a fixed location for their businesses can also claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. Doctors, for example, who consult at various hospitals, or plumbers who make house calls, can now qualify. This space must be used exclusively for business.
Taxpayers often avoid the home office deduction because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem. Document, Document, Document! Have documentation that backs up the facts in the very in case scenario the Tax Man comes knocking on your door. Always be prepared but never shy away from potential savings.
You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the ratio of the square footage of the office to the total area of the house.
5. Provide dependent taxpayer IDs on your return
Be sure to include Taxpayer Identification Numbers (usually Social Security Numbers) for your children and other dependents on your return (work from the original card, numerical errors are common and delay processing.) Otherwise, the IRS will deny the personal exemption of $3,700 for each dependent and the $1,000 child tax credit for each child under age 17. Special exceptions apply in terms of 1st time I-TIN applicants applying as a dependent.
Be especially careful if you are divorced. Only one of you can claim your children as dependents, and the IRS has been checking closely lately to make sure spouses aren’t both using their children as a deduction. If you forget to include a Social Security number for a child, or if you and your ex-spouse both claim the same child, it’s highly likely that the processing of your return will be affected, including your refund.
Also be sure to have documentation for your childcare expenses including proof of payments.
6. File and pay on time
If you can’t finish your return on time, make sure you file an extension by April 16, 2012. Filing an extension gives you six-month to file your income taxes (October 15, 2012.) On the form, you need to make a reasonable estimate of your tax liability for 2011 and pay any balance due with your request.
This saves you in interest and penalties that accumulate and are often assessed which can often be at a much higher rate. Remember to file an extension with your state where applicable, many of these filings may be done online with ease.
7. File electronically
Electronic filing works best if you expect a tax refund. Because the IRS processes electronic returns faster than paper ones, you can expect to get your refund three to six weeks earlier. Furthermore Tax Return Preparers are required to file electronically and some states charge penalties for non-compliance both to the tax payer and their preparer. Electronically filing cut down on preparer fees, mailing costs and facilitates ease of transaction.
If you owe money, you can file electronically and then wait until the federal tax filing deadline to send in a check along with Form 1040-V (a voucher slip for payments.) You may be able to pay with a credit card or through a direct debit. Make sure to mail to the correct address, often sending payments alone without a report is processed at a different address be sure to read the filing instructions carefully.
0.With a credit card, expect to pay a service charge of as much as 2.5 percent.
0.With direct debit, you may delay the debiting of your bank account until the actual filing deadline.
8. Decide if you need help
Often taxes can be confusing, there are numerous factors at play and issues can be quite delicate and sensitive. There are a variety of options available to aid taxpayers. One option is VITA (Voluntary Income Tax Assistance) a service the IRS implements in conjunction with the community to process Income Tax Returns for FREE for Low Income Families and Individuals who qualify. There is always the option of choosing a Paid Income Tax Preparer, make sure they are registered with the IRS and State and have a P-TIN (Preparer Tax Identification Number.)
Make sure when committing to a Tax Preparer or Accountant that you are comfortable with the choices they made, ask questions (there are none too small,) and make sure they are willing to sign your return. Remember you are liable for the information reported so be sure you understand what you are signing.