A dollar saved is a dollar earned. By adopting a few simple ideas, you can tackle the tax advantages that come with savings and do so with confidence. Use these top ten tax saving tips in the New Year to help you lower your taxes, save money and avoid penalties.
1. Claim a home office tax deduction
The eligibility rules for home office deduction have been substantially relaxed to allow more filers to claim a tax break. You don’t need to own your home as long as you’re adhering to the “regular and exclusive use” and “principal place of business” stipulations. You can also claim a home office deduction even if you don’t meet clients there.
2. Annualize your tax liability
If haven’t paid 100% of your tax liability to the IRS this year, you may avoid significant interest and penalties if your underpayment was due to receiving higher income after August 31, 2020. You can file Form 2210: Underpayment of Estimated Tax to annualize your estimated tax liability and possibly reduce any extra charges.
3. Organize your tax records
Good organization skills can cut your taxes and prevent you from being subject to interest and penalties.
Keep a folder of all the tax information that comes in the mail. This includes W-2s, 1099s, mortgage interest statements, plus information on the price you paid for any stocks, bonds, or funds you have sold, and receipts you’ve collected during the year.
4. Download the right tax forms
You can view and download most forms and check your tax refund status at the Internal Revenue Service website.
5. Itemize your tax deductions
Though it’s easier to take the standard deduction, it’s worth itemizing when your qualified expenses add up to more than the 2020 standard deduction of $12,400 for most singles and $24,800 for most married couples filing jointly.
Deductions may be available for mortgage interest, charitable donations, and medical expenses that exceed 7.5% of your adjusted gross income.
6. Contribute to your retirement account
If you haven’t already funded your retirement account for 2020, you can still reduce your reported income by contributing before the April 15, 2021 deadline.
If you have a Keogh or SEP, file an extension to preserve your options to contribute until October 15, 2021.
7. File and pay on time
If you can’t finish your return on time, filing Form 4868 by April 15, 2021, gives you an extension of the filing deadline until October 15, 2021. Be sure to make a reasonable estimate of your tax liability for 2020 and pay any balance due with your submission to avoid a late filing penalty.
8. Provide dependent Social Security Numbers on your tax return
Be sure to plug in Social Security Numbers for your children and other dependents on your return. Otherwise, the IRS will deny any dependent credits that you might be due.
9. File electronically
If you expect a tax refund, you can get your refund three to six weeks earlier since the IRS processes electronic returns faster than paper ones.
Besides the benefit of a fast refund, the IRS acknowledges receipt and checks your return to ensure it’s complete. It’s a protection against late fees from interest and penalties you don’t get when sending your paper return by snail mail.
10. Work with a good accountant
Working with a CPA helps make sure you’re taking full advantage of the deductions available to you. Get in touch with cpaservices.com today to discuss ways to lower your taxes, save money, and avoid penalties.
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