It’s that time of year again: tax time. And while many of your money-saving options might be limited after Dec. 31, there’s still a lot you can do to help lower your taxes, save money and avoid penalties. Here’s a quick snapshot.
Contribute to Your Retirement Accounts
Yes, doing this will help lower your tax bill. So, if you haven’t already maxed out your contribution for 2022, you can still do so up until April 18 for a traditional IRA (deductible or not), and a Roth IRA. If you have a Keogh or Simplified Employment Pension Plan (SEP), you can apply for a tax filing extension until Oct. 16; however, it’s best not to wait that long to contribute to those plans so you begin tax-free compounding. Plus, when you make a deductible contribution, your money will compound tax deferred. For instance, if you put away $5,000 a year for 20 years with an annual return of 8 percent, your $100,000 in contributions will grow to more than $250,000. Do you see these numbers? Gotta love this.
File a Form 2210
So last year, if you had an income windfall that arrived after Aug. 31, 2022, and you think you might owe taxes on it, you can file what is called an Underpayment of Estimated Tax. It will help annualize your estimated tax liability and possibly reduce any extra charges. That said, don’t try to pay too much. It’s better to owe the government than to expect a refund. As we all know, the IRS doesn’t give you any interest when they borrow money from you.
Itemize Your Deductions
While it’s so much easier to take the standard deduction, you could save a boatload when you do this, especially if you’re self-employed, own a home or live in a high-tax area. Here are couple ways to figure out if this option is right for you.
- When your qualified expenses add up to more than the 2022 standard deduction of $12,950 if you’re single and $25,900 if you’re married.
- If the portion of your medical expenses exceeds 7.5 percent of your 2022 adjusted gross income.
Take that Home Office Deduction
Good news: eligibility rules for claiming your home office deduction have been loosened, so for small business owners this is huge. And the rules apply even when you don’t have clients visit you in your office space. Here’s what you can write off:
- Rent or mortgage interest
- Repairs or maintenance
Note: The percentage of these costs that are deductible are based on the square footage of your office within the context of the total area in your home.
Provide Dependent Taxpayer IDs
Don’t forget to enter Taxpayer Identification Numbers (usually Social Security numbers) for your children or other dependents. If you fail to do this, the IRS will deny you these important credits that might rightfully be yours, such as the Child Tax Credit. However, you’ll want to be careful if you’re divorced. Only one of you can claim your kids as dependents. If you and your ex both claim your child, your return process will be detoured and they’ll be contacting you for more information. If you’re a new parent, be sure to get your child’s Social Security card as soon as you can so you’ll have it ready at tax time.
Consult a Professional
If you feel you need help or if your numbers aren’t where you’d like them to be, get in touch with your trusted tax specialist. You might be missing some critical info in your return that could help lower your tax obligation.
Taxes are a necessary part of life in the United States, so make sure you have all the right tools when diving in. When you’re well-equipped, chances are this process won’t be as much of a chore.