If you think your tax bill is chiseled in stone at the end of the year, think again. Though it’s true that most money-saving options to defer income or accelerate deductions become much more limited after December 31, there is still a lot you can do to make the tax-filing season cheaper and easier. Here are 10 tax tips for the new year to help you lower your taxes, save money when preparing your tax return, and avoid tax penalties.
If you haven’t already funded your retirement account for 2022, you have until the tax return filing due date to do so. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA.
Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal.
To qualify for the full annual IRA deduction in 2022, you must:
For 2022, the maximum IRA contribution you can make is $6,000 ($7,000 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 2022 is $61,000.
Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2022 tax bill—Roth contributions are not deductible—it could be the better choice because all withdrawals from a Roth can be tax-free in retirement.
The amount you save for making a contribution will vary. If you are in the 25% tax bracket and make a deductible IRA contribution of $6,000, you will save $1,500 in taxes the first year. Over time, future contributions will save you thousands, depending on your contribution, income tax bracket, and the number of years you keep the money invested.
If you didn’t pay enough to the IRS during the year, you may have a big tax bill staring you in the face. Plus, you might owe significant interest and penalties, too.
If you make an estimated payment by January 15, you can erase any penalty for the fourth quarter, but you still will owe a penalty for earlier quarters if you did not send in any estimated payments back then.
But, if your income windfall arrived after August 31, 2022, you can file Form 2210: Underpayment of Estimated Tax to annualize your estimated tax liability, and possibly reduce any extra charges.
A note of caution: Try not to pay too much. It’s better to owe the government a little rather than to expect a refund. Remember, the IRS doesn’t give you a dime of interest when it borrows your money.
Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.
How do you get started?
You won’t find all of them at the post office and library. Instead, you can go right to the source online.
By the way, TurboTax already includes all the tax forms you need, which takes the hassle out of deciding which forms to use. Just answer simple, plain-English questions, and TurboTax fills out all the right forms for you.
It’s easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area.
The eligibility rules for claiming a home office deduction have been loosened to allow more self-employed filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there.
One home office trap that used to scare away some taxpayers has been eliminated.
Be sure to plug in Taxpayer Identification Numbers (usually Social Security Numbers) for your children and other dependents on your return. Otherwise, the IRS will deny any dependent credits that you might be due, such as the Child Tax Credit.
If you can’t finish your return on time, make sure you file Form 4868 by April 18, 2023. Form 4868 gives you an extension of the filing deadline until October 16, 2023. On the form, you need to make a reasonable estimate of your tax liability for 2022 and pay any balance due with your request. Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS.
If you file and pay late, the IRS can slap you with a late-filing penalty of 5% per month of the tax owed and a late-payment penalty of 0.5% a month of the tax due.
The maximum late filing penalty is 25% and the late-payment penalty tops out at 25%.
By filing Form 4868, you stop the clock running on the costly late-filing penalty.
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. If you have your refund deposited directly into your bank account or IRA, the waiting time is even less.
There are other advantages to e-filing besides a fast refund:
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. You may be able to pay with a credit card or through a direct debit.
Plus, federal e-filing is now included at no additional charge with all TurboTax federal products.
Alfredo Gaxiola CPA can handle the most complex returns with ease (and allow you to file your taxes electronically for a faster refund). You just need to answer simple questions, such as whether you've had a baby, bought a home or had some other life-changing event in the past year.
If you are concerned about preparing your own return, Alfredo Gaxiola CPA offers some additional services that you can purchase when preparing your return that will give you added confidence and peace of mind. For example, you can talk to a tax professional to get your questions answered, or purchase Audit Defense coverage so that you are professionally represented in the event of an audit.
Let an expert do your taxes for you, start to finish with Alfredo Gaxiola CPA.
Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.
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