Most people think their tax bill is set in stone at the end of the year. While the money savings options available after December 31 are limited, there is still a lot you can do to simplify your taxes and save money. If you have a complicated tax situation or are afraid of being audited by the IRS, it may be in your best interest to work with a skilled tax resolution attorney. Here are three tax tips to start the new year off right and prepare for your tax return.
Contribute to Your Retirement Accounts
If you haven’t contributed to your retirement account for 2020, you’ll need to do it before April 15, 2021. This is the deadline for contributions to both traditional and Roth IRAs. However, to ensure tax-free compounding in your retirement accounts, you’ll want to make contributions sooner rather than later.
Additionally, making deductible contributions to a traditional retirement account can help lower your 2021 tax bill while allowing your contributions to grow at a higher rate than they would in a taxable account. It’s important to note that if you have a Roth IRA, your contributions will not be tax-deductible because all withdrawals from this account during retirement are tax-free. To fully qualify for the annual IRA retirement deduction, you must meet the following conditions:
● You are not eligible or participating in a retirement plan through your company.
● If you are participating in a retirement plan through your company, you must have an adjusted gross income of $65,000 or less if single or $104,000 if married and filing jointly.
● If you are not eligible for a company plan but your partner is, any contributions you make to a traditional IRA are deductible if you and your partner’s combined gross income is less than $196,000.
Make a Last-Minute Tax Payment
If you didn’t pay enough to the IRS over the year, it might be a good idea to make a last-minute tax payment. This is especially applicable to freelancers and contractors. In compliance with IRS rules, taxpayers are required to pay 100 percent of last year’s tax liability or 90 percent of this year’s tax.
If a taxpayer fails to meet these requirements, they may receive an underpayment penalty fee. It’s important to note that, while it’s imperative to pay the government throughout the year, it’s better to underestimate rather than overestimate your taxes. This is because the tax system essentially gives the government an interest-free loan.
Consider Itemizing Your Tax Deductions
While it may seem tempting to take the standard deduction, sometimes it’s better to itemize. Specifically, if you are self-employed, own property, or live in an area with high taxes, itemizing your deductions could save you a chunk of money. Itemizing can also benefit those whose qualified expenses are greater than the standard deduction, which is $12,400 for singles and $24,800 for couples filing jointly.
Consult a Skilled Tax Resolution Attorney
If you are struggling to file your taxes or are worried about a potential audit from the IRS, you should contact a skilled tax resolution attorney. A tax lawyer can help you understand the deductions you are eligible for and advise you on the best strategies for filing your taxes.
At Morgan Sebastian Law, Attorney Becky Sebastian is eager to help you navigate the complexities of your tax situation. We understand that accurately filing your taxes can be a challenge and we are here to help you navigate the process. Additionally, if you end up being audited by the IRS, Becky will work to mitigate the damage and protect your rights.