Last Minute Tax Ideas
Procrastinators rejoice! Even though April 18—due date of taxes this year—is next week, it is not too late for a few smart moves to save on taxes for 2016.
Make an IRA contribution. Contributions to an Individual Retirement Account (IRA) are deductible and can be made all the way up to the tax filing deadline of April 18, 2017. In order to take advantage of this deduction, you must not be eligible for a company retirement plan (like a company 401K or 403B retirement account). If you are covered by a company retirement plan, you still may contribute to an IRA, but your deduction may be limited based on your income. In either case, you may contribute up to $5,500 (or $6,500 if you are over age 50) in 2017, and have it credited as a 2016 contribution.
Set up a company retirement plan. If you are a small business owner or a self-employed individual, you may set up a SEP retirement plan for your company. While most qualified retirement plans for businesses have to be in place before December 31st, the SEP retirement plan may be started any time before the business’ tax filing deadline, including extensions! So, a business owner has the choice to establish and fund a SEP up until October 2017 for the 2016 tax year.
Review your filing status. The IRS will allow you to file as whatever status is most beneficial to you, so it is worthwhile to review which of the five filing statuses—single, married, married filing separately, head of household, or widowed—saves you the most money. For most married couples, a joint filing will make the most sense, but if one spouse has income based student loan payments or large medical expenses, if may make sense to file separately. Additionally, while divorced or unmarried individuals are considered single filers, it may make sense to file as head of household if they are caring for children.
Unearth deductions. Many itemized deductions are well known—mortgage interest, charitable donations, real estate taxes—but many are missed. The most commonly overlooked source of deductions is the long list of items that qualify for the miscellaneous deductions category (which must exceed 2% of your Adjusted Gross Income to be deductible)—these are items such as tax preparation fees, investment advisory fees, and unreimbursed business expenses (such as membership dues, work related travel, job hunting expenses). Also, you may deduct the cost of any driving that you did on behalf of any qualified charity at the rate of 14 cents per mile.
Get organized. By spending time gathering and organizing your tax information before you give it to your accountant, you will most likely save on the cost of return preparation. If a jumbled mess of receipts and unopened tax envelopes is dropped off at the accountant, information will most likely be missing, and the tax preparer will have to spend more time trying to gather information and put it in good order. To the extent that you can give your tax preparer an organized package of tax information, with everything that you think they need, they will be able to prepare your return quickly and correctly, saving you money on their bill as well as your return. Using a tax checklist, whether provided by your preparer or using one found online, can save you not only time and money, but also aggravation and frustration.