Tax Tips For Last Minute Filers
This is the time of year when college basketball fans are enthralled by March Madness. For many that is followed by the frustration and emotional drain of tax time.
Typically over half of us file federal tax returns by the end of March. The rest jam the process into the first two weeks of April, according to the Internal Revenue Service (IRS).
If you are in the latter group, there are a few important things to consider.
You Can Still Reduce Your Tax Bill
The deadline for filing your 2022 taxes is April 18th this year. By and large, there is not much you can do to alter your income and deductions after January 1st. However, if you have not fully funded certain retirement accounts, you may trim your tax bill by doing so before the filing deadline.
Roth IRA contributions are not tax-deductible. However, traditional IRA contributions are.
The maximum traditional IRA contribution for 2022 is $6,000 for an individual and $7,000 for filers over 50.
To qualify for a traditional IRA deduction, you can not be eligible for a company retirement plan such as a pension or 401(k) unless your adjusted gross income is below $68,000 for individuals or $109,000 for married couples filing jointly. If your spouse is eligible for a company plan, but you are not, your IRA contribution is deductible provided your combined income is under $204,000.
Generally, the maximum deductible contribution for SEP and Keough plans is $61,000 for 2022. However, the amount can vary for some business owners.
Changes to Credits and Deductions
You may be surprised if you get a refund this year. That is because the amount is likely to be less than what you got last year.
The American Rescue Plan Act increased certain tax credits and charitable deductions last year. However, those measures have expired. Consequently, they will not have as much impact on your tax savings.
Here are some of the changes from last year:
- The child tax credit this year is what it was in 2019 – $2,000 per child. Last year it was $3,600.
- The credit for child and dependent care expenses for 2022 is $3,000 for one person up to $6,000 for two. Or up to 35 percent of employment-related expenses. Last year it was $8,000.
- Last year, deductions for charitable contributions were allowed, even if you took the standard deduction. This year, you will have to itemize to claim the deduction.
Consideration for Gig Workers
If you are a freelancer or independent contractor, you may have received a 1099 form from the companies you worked for. However, even if you did not – you still have to report the income you earned.
That income is reported on your 1040 form. However, you can also file a Form Schedule C which reflects your losses/expenses as well as income from a side hustle.
Some expenses you might deduct as a gig worker include, work-related mileage; tools and equipment; licensing fees; educational expenses; and a home office.
It is important to note that employees who work from home, can not claim the home office deduction. Only self-employed individuals, which may include gig workers, can.
To do so, a portion of your home or property must be used exclusively for business. In addition, the space must be the principal office location for your business.
Additional Considerations
Due to natural disasters, the IRS has granted taxpayers in Alabama, California, and Georgia until October 16 to file their returns.
Extensions are also available for individuals. You do not even have to make an excuse. Just go to IRS Extension and file online.
Filing an extension buys you time, but it does not save you money. In fact, you need to pay any taxes you owe by April 18. Otherwise, you may be charged a late fee.
No matter how long you put off filing taxes, you will probably want any refund you are owed as soon as possible.
For returns filed online that authorize direct deposit, refunds should show up in 21 days, according to the IRS. However, if you want to track your return’s progress, the IRS provides a Where’s My Refund? online tool.
Read More:
- Tips for Preparing and Filing Your Small Business Taxes Correctly
- Effective Ways to Save Money on Business Taxes
- Should You Be Paying to File Your Taxes?
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