5 Last-Minute Moves That Can Help You Lower Your Tax Bill and Save Money
Procrastinators, rejoice: If you haven’t filed your tax return yet, there’s still time to save money. Although you may feel like you can’t change what you owe or the size of your refund, experts say the opposite could be true. Whether you’re expecting a bill or refund, there are tax deductions up for grabs, worth hundreds or even thousands in savings.
But, the clock is ticking. With the April 15th tax deadline approaching, you’ll have to act fast if you want to take advantage of the savings. By starting now, you’ll have plenty of time to gather your tax forms, organize receipts, and claim what you rightfully deserve. By beginning now, you may skip the all-nighter in April to file your return on time.
Of course, it can be tempting to race through your tax filing software, but you could be leaving money behind. Before rushing to send your return, consider these last-minute moves.
Save More for Retirement
If you’re sitting on some extra cash or getting the next stimulus check, you could use it to lower your tax bill while saving for the future. By adding money to a traditional individual retirement account (IRA) if you have one, you could score a deduction and reduce what you owe or increase your tax refund. Another lesser-known option: You can put money into your spouse’s IRA, even if they don’t work outside of the home. You can’t contribute more than your annual income, though.
“If you can afford it, go for it,” says Leona Edwards, a Nashville, Tennessee-based certified financial planner and wealth advisor at Mariner Wealth Advisors. But you’ll have to watch for sneaky contribution limits and deadlines: You can save up to $6,000, with an extra $1,000 if you’re 50 or older. The deadline to add the funds is April 15th unless you file for a tax extension. Also, your workplace retirement plan and income could limit the size of your tax break. The complete rules are here.
These tax-friendly perks are only available for your traditional (pre-tax) IRA, and your Roth IRA (after-tax) contribution won’t improve this year’s taxes. If you’re unsure which type of IRA you have, call your provider and learn more from this handy chart.
While it’s too late to deposit more money into an employer-supplied 401(k), self-employed folks can still add money to their Solo 401(k) — up to 25 percent of your earnings — as the “employer.”
Boost Your Healthcare Savings
Your health savings account (HSA) is more than a debit card to swipe at the doctor’s office or pharmacy; it’s also a smart way to save on your taxes. There is still time to deposit up to $3,550, or $7,100 for a family plan, and get a tax deduction for the 2020 tax year.
Not only will contributions lower your taxes, but you’ll have the funds for when you need them. There are no deadlines to use the money, and you can keep it all when you change jobs. “It’s nice knowing there’s a nest egg in case of a surprise medical bill,” says Edwards.
HSAs also have another tax-friendly feature: the chance to earn tax-free interest. “Some HSAs let you invest your balance so it can grow over time,” Edwards adds. When you need to spend the money, you won’t pay taxes or penalties, as long as you use it for qualified medical expenses.
Tally Your 2020 Donations
Despite the pandemic, 2020 was a record year for charity. According to a recent Invisibly survey, 55 percent of Americans donated money in 2020, and some of those gifts may qualify for a tax break. If you gave money by check, credit card, or cash, and are planning not to itemize your deductions, you can deduct up to $300 of eligible donations. After adding up your receipts, you can see which groups qualify with this IRS tool.
Don’t Miss Business Expenses
“Business owners, check your expenses,” Edwards recommends. “There may be something you forgot to deduct.” Whether you’re a freelancer, contractor, or small business owner, it can be easy to skip money-saving tax deductions.
Here’s how it works: You can subtract certain expenses from your revenue, reducing your business’ profit and lowering your taxable income. Some of the most common deductible business expenses may include, but aren’t limited to:
Before filing your tax return, it’s critical to organize your messy stack of business receipts. Tax audits can happen, and if they do, you’ll need to have easy-to-access proof of your deductions.
Unfortunately, if you typically work in an office setting but worked full-time from home during the pandemic, you won’t qualify for the home office deduction. But if you spend money to spruce up your home office, you could ask your employer to cover some of the cost.
Work With a Tax Expert
If you’re feeling totally lost or your situation is complicated, it may be worthwhile to hire an expert, like a certified public accountant (CPA) or enrolled agent (EA). You may rest easier knowing your tax return is correct and you aren’t paying Uncle Sam any more than you need to. “Hire a tax specialist to make sure you aren’t leaving money on the table,” Edwards says. Sure, you’ll need to pay them for their services, but that fee can quickly be made back in the money they might be able to help you save, long-term.