By Paula Pant
April 15 is fast-approaching, and if you're like many people, chances are your tax prep is somewhere on the spectrum between mild disarray to frantic, panicked scrambling. There's just something about doing our taxes that makes many of us revert to slacker college student mode, waiting till the last minute to throw together that report we've known about for months.But there is hope. There are plenty of last-minute tax tips that can still save you a hunk of change, even in the 11th hour.
So put down that shoebox of receipts, take a deep breath, and read on:
Don't fall into the trap of thinking that if you can't pay your taxes, you may as well not file. You're going to wind up paying a penalty either way, but it will be much bigger if you don't file at all.
Consider this: The penalty for failing to pay your taxes is 0.5 percent of whatever you owe. So, if you owe $5,000, you'll be charged $25/month.
In contrast, if you don't file at all, you'll be charged a whopping 5 percent of your outstanding tax bill. Instead of $25/month, you'll be looking at a penalty of $250/month for a $5,000 tax bill.
Which would you prefer?
Are you filing for a tax extension? You still need to mail the IRS a check.
Filing for an extension does not exempt you from having to pay by the April 15 deadline; it just extends your deadline for turning in your tax return by six months. If you don't pay, you're still liable for that 0.5 percent penalty.
How do you pay if you don't know exactly how much you'll owe? Give your best estimate. There are a variety of free tax estimator tools online that can help you get a basic idea of what you'll owe. You may still be charged interest and penalties for the remaining balance if you wind up making an underpayment, but it will be considerably less than if you didn't make a good-faith payment at all. (If you can afford it, make an overpayment, just to ensure that you won't pay a penalty.)
One of the biggest mistakes taxpayers make is failing to take full advantage of every deduction and credit that's available to them. Yes, it will take you a little more time, but if you skip this step, you're leaving money on the table.
Whether you're an individual, a small business owner or anything in between, chances are you'll qualify for some type of deduction. Here are some of popular examples:
" Are you a homeowner? Your mortgage interest is tax-deductible.
" Do you have a child under age 13? Some childcare expenses are tax-deductible, at $3,000 per qualifying individual, up to a maximum of $6,000.
" Did you pay for college for either yourself or your child? If your income falls under certain guidelines (modified adjusted gross income of $80,000 for single filers and $160,000 for joint filers), you may be eligible for a tax credit.
" Are you a lower-income individual or couple? You may be eligible for an additional "Saver's Credit" of $1,000 (individual) or $2,000 (couple) for contributing to your own retirement account.
Maximizing your deductions is a great idea for all taxpayers. But the qualifying activity -- paying mortgage interest, paying for childcare -- had to happen last year.
In other words, this information can help you take advantage of the deductions and credits that you already qualify to receive. But it can't necessarily help you qualify for more.
In the next three sections, let's look at steps you can take today to retroactively reduce your tax bill.
Most tax deduction strategies, unfortunately, require you to take action before the end of the calendar year, so you may too late to knock a chunk off your 2013 tax bill. But you're not totally out of luck. Even if you're up against the wire, you can still squeeze some extra savings from your tax return by contributing to a traditional IRA.
If you do so on or before April 15, and specify that your contribution is a prior-year contribution, you could be eligible to deduct as much as $5,500 from your 2013 tax return. (Up to $6,500 if you're over 50.) Extra money in your IRA and a tax deduction? I call that a win-win.
If you have high-deductible health insurance (a $1,200+ deductible for single coverage or $2,400+ for family), you can snag additional savings by contributing to your health savings account, or HSA.
The maximum contribution for tax year 2013 is $3,250 for individual coverage and $6,450 for family coverage (with an extra $1,000 in "catch-up" contributions if you're 55 or older). And your deadline for making these contributions is April 15, 2014.
In other words: If you can move this money into your HSA account before this years' tax-filing deadline, you can enjoy an additional tax deduction.
Likewise, you can make retroactive contributions to your 401k account that apply towards last years' tax bill. Move money into your 401k and earmark this as a "previous year contribution." Like the HSA and Traditional IRA, your deadline for making 2013 contributions is April 15, 2014.
One final tip: Don't let your last-minute rush lead you to make costly mistakes. Three of the most common mistakes taxpayers make are math errors, incorrect Social Security Numbers and neglecting to sign and date their return.
Use tax software or hire a CPA (or, at the very least, double-check your math with a calculator). Proofread everything to make sure you didn't make any typos or transpose any numbers. And make sure the signature and date are complete before you hit "send" or put that envelope in the mail. Don't delay your refund by carelessness.
The IRS estimates that 20-25 percent of all taxpayers wait until the last two weeks to file their taxes. If this describes you, you're still in luck.
Follow the above tips to maximize your savings. Then do yourself a favor and make a date with yourself to start your 2014 return much, much earlier. You'll thank yourself for it.
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