Are you a procrastinator who waits until the very last moment to file your taxes? Thanks to Emancipation Day, the filing deadline is April 18, 2017, to file your taxes for the 2016 tax year. That gives you a few more days to consider last-minute ways to lower your taxes.
Start by reviewing your possible deductions. Did you just assume that it doesn't pay to itemize? Check out these 17 top tax deductions, and while you're at it, look over these 4 popular tax credits. Tax credits subtract directly from your tax bill instead of reducing your taxable income, and some are refundable (meaning that you may receive a refund even if it's more than the taxes that you owe).
The Deadline for Annual Retirement Contributions
You can also use retirement fund contributions to lower your taxes significantly. Annual contribution limits to IRAs are $5,500 with an extra $1,000 in "catch-up" contributions if you are over age 50. You can make contributions until the tax-filing deadline for that year, so contributions for the 2016 tax year may be made until April 18, 2017. (Make sure that your contribution is designated for the 2016 tax year, not 2017.)
You can even open a traditional IRA before the tax-filing deadline of April 18, 2017, and apply the contributions to your 2016 taxes. (You could also open a Roth IRA, but since they are created with after-tax funds, you won't save anything on your taxes.)
Rules for 401(k)s are less straightforward. Generally, as an employee, your contributions to 401(k) plans must be completed by the end of the calendar year for that same tax year. Employers may delay their contributions until the filing deadline depending on the 401(k) structure.
If you are going to contribute to your retirement fund, it's always better to do it earlier in the contribution year to maximize the amount of tax-free interest growth — but if you have the available money and the space below the contribution limit, why not make the best of the situation and max out your 2016 contribution while you can?
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.
The Deadline for Annual Health Plan Contributions
Do you have a high-deductible health plan (HDHP) and a corresponding Health Savings Accounts (HSA)? Similar rules apply. You can generally contribute to your HSA until April 18, 2017, and have it count toward your 2016 contribution limit ($3,350 for singles and $7,750 for family coverage). Verify the rules on your individual HSA before making any changes.
The Deadline for Filing for an Extension on your Taxes
Can't deal with your taxes at all right now? You can file for an extension using IRS Form 4868 to delay filing up to October 16, 2017 — but you will have to file the 4868 form before the April 18 deadline to avoid late filing penalties. You must also include payment of the taxes you expect to owe with your extension. By filing an extension, you can take the time to properly explore your options (or perhaps seek help from a tax professional).
Failing to file the extension form on time or to pay your estimated taxes will rack up late filing and late payment bills, which can be substantial. Failing to file accrues a penalty of 5% of the bill for every month or part of a month late, up to 25%. Failing to pay accrues 0.5% each month.
Filing for an extension doesn't extend the contribution deadline for IRAs, HSAs, or 401(k)s, but it does extend the contribution deadline for some retirement programs, primarily Keoghs or SEP plans. If you have a less traditional retirement plan and are not sure what qualifies, contact your plan administrator for advice.
What if you are not a procrastinator and you've already filed your taxes? If you find tax savings after the fact, you can amend a tax return after you have filed by using an IRS 1040X form. The 1040X form basically asks you to list the changes from your previously submitted form.
Important note: Do not attempt to file a second 1040 form to make your changes. Only the 1040X form should be used to make changes or correct errors.
If you were due a refund on your original filing, the IRS suggests that you wait for your original refund to be processed before filing your 1040X. (If you were correcting a mistake and owed more money, you would need to file and pay the difference as soon as possible to minimize penalties.)
Whether you filed on the first available day or the last — or filed an extension to get more time — there's still a way to save on your tax bill for 2016. Take a few moments to review your tax situation. You may find a nice return (pun intended) on your invested time.
This article was provided by our partners at moneytips.com.
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