(Editor”™s note: Tax Day is Tuesday, April 18, this year. Ben Soccodato and Chris Kampitsis of The SKG Team at Barnum Financial Group have offered these reminders if you still haven”™t filed: )
According to the”¯Internal Revenue Service, more than seven million Americans fail to file their taxes on time every year. Even worse, some people are unaware of the consequences of filing late. Essentially, your zero strategy should be to file your taxes on time.
When you begin the process of filing, these five additional strategies may help you maximize your returns.
- Contribute to a SEP, IRA or Roth IRA ”“ A SEP IRA or Traditional IRA contribution reduces your current tax liability. However, if you or your spouse participates in a retirement plan at work, your eligibility to contribute to a traditional IRA may be limited. To make a SEP contribution, you need to be self-employed.
Most people overlook the chance to get additional funds in their Roth bucket. This could be a great opportunity to reduce your current tax liability.
Whether you”™re filing your taxes as single or married, the contribution to a Roth IRA is limited by modified adjusted gross income (MAGI). If you’re 50 or older, you may also make an extra catch-up contribution.
- Gather receipts of your charitable contributions ”“ Make sure not to leave out any charitable donations made during the year when filing your taxes. You could reduce your taxable income by itemizing your deductions, cash and property donations to eligible charities.
In the case of cash donations, it”™s important to keep the receipts for proof. You also need an appraisal of value from the charity for donated property. The documents come in handy should a regulator want to confirm the donations made.
- Report any cryptocurrency or foreign bank account ”“ Taxpayers who hold Bitcoin, Ethereum and other cryptocurrencies may have to pay taxes on them when filing their tax returns. When preparing your tax documents, you should declare them as capital gains or losses.
Foreign bank accounts and financial assets must also be declared. Failure to do so may bring hefty fines, penalties or even jail time.
- Check your filing status — It may sound like a no-brainer, but it”™s essential to confirm your filing status before filing your taxes. Are you single or married filing jointly, married filing separately or head of household?
For most taxpayers, this is straightforward. However, some life events like separation, divorce or the death of a spouse can influence how much tax you owe. You should understand the different filing statuses and their various qualifications to know which suits your situation.
It”™s also a good idea to make sure of your documents. We all like to think we”™re prepared, but it doesn”™t hurt to make sure you have all documentation needed, including:
- W-2 forms, 1099 forms (if appropriate), alimony received, sale information and miscellaneous income:
- Income adjustment documents, such as 1098 forms for student loans, tuition and mortgage interest, IRA contributions, energy-efficient home improvement receipts (see below), Medical Savings Accounts contributions, self-employed health insurance payments, pension plan information, moving expenses and records of alimony paid:
- Itemized deductions (if applicable), such as childcare, education, adoption costs, investment interest expenses, charitable donations and medical and dental expenses.
- Check if you are eligible for tax credits ”“ These are a great way to reduce the amount of taxes you owe, but most taxpayers miss out on them because they don’t think about them or know they exist.
Some of the most common credit sources include energy-efficient home improvement, electric vehicles and education credits. Did you purchase an energy-efficient home improvement product like a heat pump, water boiler or certain windows? If so, you should consider the credit you can claim.
The same goes for electric vehicles. However, specific vehicle standards and income thresholds must be met to qualify for such incentives. For instance, married filing jointly is a $300,000 threshold, but for single, it’s $150,000.
Education credits like the American Opportunity Tax Credit and Lifetime Learning Credit are also important. You can use the 1098 tuition form or other documents to support your eligibility for the education credits.
It pays to take all available credits and deductions into account when filing your taxes. Doing so can significantly reduce how much you owe in taxes or increase the amount you receive back during tax season. Explore any credits you may qualify for and check if there are any application deadlines.
