Although the 2010 tax year ended December 31st, and the IRS deadline is just a few weeks away, there are still things you can do to reduce your 2010 tax liability. This could mean a larger refund or a smaller balance due!
Contributions to a traditional IRA (not a Roth IRA) can be made all the way until Tax Filing Day, and deducted from your 2010 taxes. So, if you have not yet contributed the maximum $5,000 allowed per year ($6,000 for taxpayers over 50), consider making another contribution before April 18. It is beneficial to your future financial security, and can have a big impact on your taxes now! Just remember not to “double dip” and try to claim the contributions you make on your 2011 taxes as well.
Independent contractors and small business owners may be eligible for a SEP-IRA, essentially a retirement account designed especially for the self-employed. Contributions can be made until April 18, 2011 and claimed on your 2010 tax return. The maximum annual contributions for SEP-IRAs are $5,000 for taxpayers 49 years old and below and $6,000 for taxpayers over 50. The same rule about double dipping applies to SEP-IRAs too. If you claimed the contribution in 2010, you cannot claim it in 2011 as well.
Health Savings Account
If your health plan is of the high-deductible variety, a health savings account might be a great move for you. Any contributions can be deducted from your taxable income. You can claim deductions made whether you itemize deductions or not. Any earnings or interest are tax free, the account is portable, and contributions from your employer may be excluded you’re your income. Contributions can be made, and spent, up until the tax deadline.
Double Check Deductions and Credits
One of the biggest reasons people over-pay their taxes is that they miss deductions and credits for which they are eligible. It is your right as at taxpayer to pay exactly what you owe, no more, no less. Take the time to review your tax return to see if you might have missed any deductions (like these: commonly overlooked deductions) or credits. Go line by line, and see if anything jogs your memory. This extra step can go a long way in reducing your tax liability and saving you money.
Worried About Time?
If you have not filed your tax return yet, you might consider filing a request for extension – Form 4868 – right now. Best case scenario, you file on time, no harm no foul. Filing one extra form is a much better alternative than missing the deadline, and being subject to penalties! The IRS does not mess around when it comes to failure to file. Better safe than sorry! Of course, please remember that this is a filing extension, not an extension of time to pay. If you owe more on your taxes, you must pay your liability by April 18. If you don’t, the IRS will slap you with some pretty nasty penalties and interest.
Of course, make sure you work with your tax or financial professional to ensure you are eligible for these tax breaks. There are rules and limitations to everything in the tax world, so do your research.