Given that the tax filing deadline is just a few weeks away, here are some last minute tax tips to help lower your liability:
Setting up a filing system with all your tax information, from receipts to statements to last year’s tax return – is the best way to avoid scrambling at the last minute. If you’re not organized you might miss out on significant tax breaks, make math mistakes, or improperly estimate what you owe (and thus get hit with penalties and fees).
Don’t overlook valuable credits…
According to the IRS, an astounding 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it. This credit, designed for lower income working families and individuals, is worth up to nearly $6,000 for those who qualify. Other credits that are often missed include the Child and Dependent Care Credit, which is worth between 20%-35% of what you pay for child care while you work, and the American Opportunity Credit, which is worth up to $2,500 of your college tuition, course materials, supplies and related expenses paid during the taxable year.
People tend to remember cash donations they made to their favorite charities, but they frequently overlook out of pocket charitable contributions. Granted you can’t deduct your time, but if you drove your car for charity in 2011, you can deduct 14 cents per mile plus any parking and toll fees faced during your philanthropic journeys. Other deductions often overlooked include things such as student loan interest, property taxes, moving expenses, and job hunting expenses, which, by the way, are deductible even if the hunt was not successful.
Just don’t go overboard!
This is where many self-employed individuals (which are a lot of us these days) tend to run into trouble, whether it’s merging their business and personal expenses, claiming large deductions for business travel and entertainment, or taking massive write-offs. Don’t get carried away – especially if you can’t back it up with proper documentation! – or the IRS will take notice, which may increase the odds of an audit. Remember: the key is to look like other taxpayers in your income bracket.
Contribute to your IRA
The maximum contribution is $5,000 for the 2011 tax year; $6,000 if you’re 50 or older. You have until April 17th to make these contributions. Part – or all of it – may be deductible.
Don’t wait any longer! If you aren’t going to make the tax deadline you’ll need to file an extension by April 17, you can do it online for free. And remember, an extension to file isn’t an extension to pay, so if you owe money, that payment still needs to be sent to the IRS by April 17.
If you are just one of the 28% of taxpayers out there that wait until the last minute to file, no more excuses. Go online and file today! With TurboTax you could even be done in under an hour.