So … let me just preface this by saying that I hope all of you have finished your taxes, gotten your refund, and are not stressed out this week and cursing Uncle Sam.
But I also know that some of you aren’t. You’re not done yet. You haven’t dotted the i’s or crossed the t’s. This post is for you. It’s a list of last minute tax tips—breaks, credits, and ways to save—that you should be sure not to miss.
- Contribute to retirement. Making contributions to IRAs (not the Roth, but traditional), 401(k)s, SEPs and other retirement plans cuts your current tax bill by reducing your adjustable gross income. If you haven’t maxed out, then kick in what you can right now. For an IRA that’s up to $5000 for everyone up to age 50, and $6000 for individuals age 50 or older. For a 401(k), it’s $16,500 for everyone up to age 50 and $22,000 if you’re 50 or older. If you’re confused about getting the money into your 401(k) at this late date call your benefits department or plan administrator and ask for the protocol.
- Don’t miss other valuable benefits. Particularly confusing this year are the education credits. There’s the American Opportunity Tax Credit (which replaced the Hope Credit). It’s worth up to $2,500 (and it’s a credit, which makes it a dollar-for-dollar reduction of taxes and much more valuable than a deduction which reduces your adjustable gross income) if your income is less than $80,000 (single) or $160,000 (married, filing jointly). You can claim it not just for tuition and fees but books and supplies. And up to $1,000 or 40% of this credit is refundable—so if the credit exceeds the taxes you owe, the government will send you a check. The confusion comes in, however, in that there’s another education benefit in the form of a $4,000 deduction for tuition and fees. And you have to choose. Some people automatically assume the higher $4,000 number means it’s more valuable than the $2500 credit. It’s not. The credit almost always makes more sense.
- Remember job search expenses. If you spent part of 2010 unemployed, the ability to deduct job search expenses may be yet another reason to itemize. They fall under the “miscellaneous itemized deductions” category and you have to hit 2 percent of your adjusted gross income in order to write them off at all. But, if you were unemployed for all or part of last year, that will be an easier hurdle to clear than it typically is. What counts? Travel expenses to go on job interviews, paying a lawyer to review a contract, recruiter fees, resume prep services. Of course, you need to have receipts and documentation as you would for any deduction.
- Consider running the numbers twice. In years past, taxpayers were able to deduct a portion of their state property taxes above and beyond the standard deduction. If you want that this year, you need to itemize. So, run the numbers twice—itemizing and taking the standard deduction (easy if you’re using a tax prep program like Turbo Tax) to see which makes more sense for you.
- Ask for an extension. Anyone can get an automatic six-month extension to file (not to pay—more on that in a moment) their taxes. You just have to ask for it! And the way to do that is to fill out form 4868 which you can pull off the Internet at IRS.gov. This is, as I said, an extension to file not to pay. If you owe the IRS money (a good rule of thumb is that you need to have paid in as much as you owed last year by the filing deadline), the check needs to be postmarked or the money zapped out of your bank account electronically by the filing deadline.
So tell me: Do you wait to file until the last minute?