How to save on your taxes and other last-minute tax tips

After two years of extended deadlines, tax returns are back in April – and fast approaching.

The pandemic has delayed filing deadlines that lasted until late spring or even summer. But this year, the filing date for most taxpayers is April 18, a little over a week later.

However, there may be a few things you can do to reduce your tax bill. Here are some steps to consider.

There is still time to make contributions to a traditional individual retirement account for the 2021 tax year and take a deduction – if you meet the conditions. Contributions to the 2021 IRA can be made by the filing deadline – up to $ 6,000 for an individual and $ 7,000 for people who were 50 or older at the end of 2021. However, your deduction may be limited depending on your income and whether you have a retirement plan.

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

The deadline for contributing to the Roth IRA for 2021 is also April 18 – but since you do not receive a tax credit for depositing money with Roth, this will not reduce your tax bill.

You may also be able to reduce your taxable income by depositing in a health savings account or HSA by the filing deadline. To be eligible, you must be covered by a health plan that meets specific criteria, such as a high deduction (at least $ 1,400 per individual for 2021), said John Larson, vice president of compensation decisions at Conduent. business services company.

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

If you only had eligible health coverage for part of 2021, the maximum contribution you can make may be less, said Rita Asaf, vice president of retirement at Fidelity Investments. For example, someone enrolled in a qualified health plan for six months can contribute up to $ 1,800 – half the maximum.

But there is an option that allows you to contribute more to your HSA, known as the “last month” rule, Ms. Asaf said. Here’s how it works: If you qualify for HSA on the first day of the last month of the tax year – say December 1, 2021 – you are considered eligible for the full year and can contribute up to the maximum. But there is a catch: you need to keep your health coverage with high deductions for the next 12 months. If you lose qualified health coverage before the end of 2022, you will owe taxes and possibly a penalty on the additional contribution, says the IRS.

The money is paid to the HSA tax-exempt. It is also tax-exempt when it is withdrawn for eligible medical expenses and can be invested and grown without federal taxes. The bills go with you if you change employers.

At the state level, several states do not offer the same tax breaks. California and New Jersey tax HSA contributions, while New Hampshire and Tennessee tax HSA revenues, including interest earned and investment gains, according to HSA’s Lively.

And for those of you who haven’t started calculating your taxes and now realize that you can’t meet your tax deadline, you can apply for an automatic extension. This gives you until October 15 to prepare and submit your declaration.

“You will want to extend if you do not 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 the file extension doesn’t give you more time to pay. So you will have to make your best estimate of what you can owe and pay the government by April 18th.

Some people may worry that they can’t pay, so they don’t file a return. But this creates more problems, including penalties for not submitting documents, Mr Grzes said. You need to submit and pay what you can, he said, and then contact the IRS to discuss a payment plan to pay each balance after your return is processed. To assess what you owe, he said, check last year’s return or, if you use do-it-yourself tax software, enter the information you have to get an approximate amount.

The Ministry of Justice recently warned taxpayers to be careful when choosing a tax specialist, noting that it has taken action against many dishonest trainees over the past year. Red flags include preparers asking you to sign a blank declaration or refuse to sign a declaration they have prepared (known as a ‘ghost’ declaration), will not allow you to review your declaration before submitting it or depositing your refund in a way that is not clear to you. The IRS offers advice on choosing a trainee on its website and offers a directory of accredited trainees who can be searched by zip code.

The Internal Revenue Service is offering free assistance – no meeting required – at its taxpayer support centers in many cities on Saturday (April 9th). The Office will not make declarations, but taxpayers can get answers to questions and guidance.

Free tax preparation options include a free IRS file and volunteer income tax support programs and tax counseling for the elderly. 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 18. You can use Form 1040-ES to determine how much to pay.

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