After two years of extended deadlines, the tax filing is back in April — and it’s fast approaching.
The pandemic has led to delays in setting deadlines that extend into late spring or even summer. But this year, the filing date for most taxpayers is April 18, just over a week later.
However, there may still be some things you can do to reduce your tax bill. Here are some steps to consider.
There is still plenty of time to contribute to a traditional IRA for tax year 2021 and take a deduction – if you qualify. 2021 IRA contributions can be made until the application deadline—up to $6,000 for an individual and $7,000 for people age 50 or older at the end of 2021. However, your deduction may be limited, depending on your income and whether Have a retirement plan in the workplace.
Self-employed people can put in more of their earnings by contributing to a Simplified Employee Retirement Plan, or SEP IRA. The contribution limit for a 2021 SEP IRA is 25 percent of your compensation or $58,000—whichever is lower. (You may also have more time to contribute to your SEP IRA if you get an extension until October 15 to file your tax return, you have until then to make a contribution.)
The deadline to contribute to a Roth IRA for 2021 is also April 18—but because you don’t get a tax deduction for depositing money into a Roth, you won’t lower your tax bill.
You may also be able to reduce your taxable income by contributing to a health savings account, or HSA, by the filing deadline. To be eligible, you must be covered by a health plan that meets specific criteria, such as a high deductible (at least $1,400 per person for 2021), said John Larson, vice president of benefits solutions at Conduent, a commercial services company.
If you qualify, the contribution limit for 2021 is $3,600 for an individual and $7,200 for families. People 55 and older can contribute an additional $1,000.
If you have eligible health coverage for only part of 2021, the maximum contribution you can make may be lower, said Rita Assaf, vice president of retirement at Fidelity Investments. For example, anyone enrolled in a qualifying health plan for six months can contribute up to $1,800 — half the maximum.
Ms Assaf said there is an option where you can contribute more to your HSA, known as the ‘last month’ rule. Here’s how it works: If you qualify to contribute to an HSA on the first day of the last month of a tax year — let’s say December 1, 2021 — you qualify for the full year and may contribute a maximum. But there’s a catch: You must keep your high-deductible health coverage for the next 12 months. If you lose qualifying health coverage before the end of 2022, you will owe taxes and possibly a penalty for the additional contribution, the IRS says.
The money contributes to the tax exemption of the HSA. It’s also tax-deductible when withdrawn to pay for qualified medical expenses, and can be invested and grown without federal taxes. The accounts go with you if you change employer.
At the state level, some states do not offer the same tax credits. California and New Jersey tax HSA contributions, while New Hampshire and Tennessee tax HSA earnings, including interest earned and investment gains, according to HSA provider, Lively.
And for those who haven’t started calculating your taxes and now realize you can’t set a tax deadline, you can apply for an automatic extension. This gives you until October 15th to prepare and submit your return.
“You’ll want to extend if you don’t have the information needed to prepare a complete and accurate return,” said Henry Grezis, principal director of tax practices and ethics at the American Institute of Certified Public Accountants.
But extending the file does not give you more time to pay. So you will need to make your best estimate of what you may owe and pay to the government by April 18.
Some people may worry that they can’t pay, so they don’t offer a return. This creates more problems, including penalties for failure to apply, Mr. Gerzes said. He said you should file and pay what you can, then call the IRS to discuss an installment plan to pay any credit after your return has been processed. To estimate what you owe, he said, check last year’s return, or if you’re using a do-it-yourself tax program, enter the information you have available to get an approximate amount.
How do I find a reputable tax preparer?
The Department of Justice recently warned taxpayers to be careful when selecting a tax professional, noting that it has taken action against several dishonest returners over the past year. Red flags include preparers asking you to sign a blank return or Refusing to sign the return they prepared (commonly known as a “stealth” return), will not allow you to review the return before it is submitted or deposit the refund in a way that is not clear to you. The IRS offers tips on choosing a preparer on its website and provides a directory of certified preparers that can be searched by ZIP code.
Where can I get free help with tax questions?
The Internal Revenue Service is offering free, no-appointment assistance at taxpayer assistance centers in many cities on Saturday, April 9. The office will not prepare returns, but taxpayers can get answers to questions and receive guidance.
Free tax preparation options include a free IRS filing, tax assistance for income tax volunteers, and tax counseling for seniors programs. You can search the IRS website for locations.
What is the deadline for the first estimated tax payment for 2022?
If you are self-employed or required to pay estimated quarterly taxes, the first payment deadline is April 18. You can use Form 1040-ES to find out how much to pay.