April is fast approaching and soon, everyone will have to visit their accountants and file their taxes. That said, we need to make sure we are filing taxes correctly. Keeping accurate and up-to-date records is important. Here are some tax tips and how to be well-prepared for tax time.
Contribute to retirement accounts
If you haven’t done so yet, or you’d like to contribute more, you have until tax filing day to do so. For a refresher, here are the contribution limits for some IRAs: IRA/Roth IRA – Max contribution is $6,000 ($7,000 if you’re over 50 or older).
If you have a SEP IRA and you get an extension, you have until October 17, 2022, to make your 2021 contribution.
This is more of a tip for the end of the year, but make sure you take your Required Minimum Distributions. For people that are either over 70 ½ or over 72, depending on when you turned those ages, you need to withdraw money from your IRA. If you don’t, you’ll pay a tax penalty of 50% of the amount you should have withdrawn. For example, if your required amount was $10,000. You’ll pay a $5,000 tax penalty if you didn’t take that distribution.
Make a last-minute estimated payment
If you didn’t pay enough or you didn’t make a payment to the IRS for 2021 taxes, you have until you file to make your payment.
According to the IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s or you will owe an underpayment penalty.
Get tax docs in order
Get all of your tax documents in order. For earnings for the year, you’ll need one to several forms, depending on what you do for a living and how your business is set up. W2s are pretty common. If you’re an independent contractor, you’ll need 1099.
Itemize your deductions
Most people will take the standardized deduction, which is $12,550 for single filers and $25,100 for married couples filing jointly.
However, if you are self-employed or you have a lot of expenses that are tax-deductible, itemize your deductions. You could save a lot more money IF your total itemized deductions are larger than the standardized deduction.
Home office tax deduction
With the move to work from home still taking place, it might make sense to take advantage of the home office tax deduction. Here are some of the rules:
- You must use the space exclusively for business
- Expenses related to the space used for business are tax-deductible but need to be calculated according to the amount of square footage used for business
- A lot of taxpayers stay away from this deduction, as they think it’s a red flag for an audit. If you’re legitimately using the space as you say and you aren’t fabricating numbers, then you have nothing to worry about
Last-minute tax tips for tax time
Triple-check your work if you prepared your own taxes and file on time. If you’re having someone prepare your taxes on your behalf, make your appointment ASAP because their calendars will fill up really fast.
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