Tax filing deadline is approaching, but there are still some last-minute ways to cut what you might owe.
You may have missed the Dec. 31 deadline to make some key tax-saving moves for 2017, but you still have time to whittle your tax bill before this year’s April 17 filing deadline.
AARP Foundation Tax-Aide volunteers can help older Americans and others save time and money with free tax-preparation advice at nearly 5,000 nationwide locations. Depending on your age, job status, income and family situation, here are some additional measures you can take that might lower your 2017 tax bill:
If you turned 70½ last year and retired. The Internal Revenue Service requires you to take a Required Minimum Distribution (RMD) from your IRA or 401(k) retirement account no later than April 1. RMDs are designed to ensure people take taxable distributions while they are still alive. Subsequent RMDs must be taken by Dec. 31 every year that you are retired. If you don’t take that first RMD, the IRS may hit you with a 50 percent penalty on the amount that should be withdrawn. This doesn’t apply if you’re still working, but check IRS withdrawal guidelines here.
If you turned 65 in 2017. Don’t forget to take the additional standard deduction, worth $1,550 for singles and $1,250 for you and your spouse if you’re both at least 65.
Fund an Individual Retirement Account. You can still stash $5,500 ($6,500 for those 50 or older) pretax in a traditional tax-deferred IRA. That could save someone in the 25 percent tax bracket $1,375. You can also fund an IRA in your spouse’s name as long as one of you earned enough income to match the IRA contribution. Check here for IRS limits and regulations.
Open or contribute to a Roth Individual Retirement Account. A Roth IRA won’t give you a pretax break, but withdrawals are tax-free after age 59½. Contributions made in 2018 will be applied to this year unless you specify it’s for the 2017 tax year. Check here for IRS limits.
Max out your Health Savings Account. If you have a high-deductible health insurance plan, you may be able to write off up to $3,400 ($6,750 for families) for an HSA contribution. If you’re 55 or older, you can even sock away an extra $1,000. Unlike Flexible Spending Account funds, HSAs can roll over each year and accumulate for qualified long-term medical and health care expenses. An added bonus: After you turn 65, HSA funds can be used for any purpose.
Fund a SEP. Business owners and the self-employed can stash pretax money in a Simplified Employee Pension Plan. “Typically, you can contribute up to 20 percent of your net employment income,’’ says New Jersey-based Certified Public Accountant Barry Kleiman. While you have until April 17 to fund an IRA or Roth IRA, you can fund a SEP until Oct. 15 with a filing extension.
Take advantage of expiring tax breaks. If you moved more than 50 miles for a job in 2017, you can write off 17 cents per mile for driving your own vehicle. Job-related expenses that exceeded 2 percent of your adjusted gross income are also deductible. So are tax-preparation fees and itemized deductions for property losses due to disaster, theft or accident that weren’t reimbursed by insurance. The new tax law preserves the casualty- and theft-loss deductions — but only for federally declared disaster areas — while the other tax breaks have expired.
Don’t forget eligible tax credits. The Retirement Savings Contributions Credit provides some low- to middle-income workers credits worth up to $2,000 (or $4,000 for married couples filing jointly) based on retirement plan or IRA contributions. Generally, couples have to have adjusted gross income up to $62,000. Others may qualify for an Earned Income Tax Credit depending upon their filing status. Couples filing jointly with adjusted gross income of up to $53,930 and three or more dependents can get up to $6,318. Some taxpayers may also get up to $1,000 per child under the Child Tax Credit.
If you owe, file (and pay) on time. You can get a six-month tax filing extension by filing IRS form 4868 by April 17. But if you owe taxes, the IRS can dock you a late-filing penalty of 4.5 percent per month on the amount owed, plus a 0.5 percent late-payment penalty. (Both the late-filing penalty and the late-payment penalty max out at 25 percent.)
Determine next year’s tax bill. Most taxpayers are likely to pay lower taxes this year, but not all. So it’s not too early to think about what you might owe in 2019, given the loss or cap of some prized tax breaks that disappear under the new tax code. Some taxpayers may need to adjust their W-4 withholding allowances to make sure they won’t underpay.
“This is mission critical, even if you might be getting a refund this year,’’ says New York-based CPA John Lieberman. “Everyone needs to be careful over what deductions they are going to lose and what their tax liabilities are. You might be getting a bigger paycheck, but you could have a larger tax bill at the end of the year.”
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