Tax season has a way of turning even the most diligent deadline-sticklers into big-time procrastinators. But, with April 18 fast approaching (taxpayers will get an extra three days to file their federal tax returns this year), now even the foot-draggers who have yet to file their 2010 returns can find solace in the following last-minute tips and tactics — furnished by tax experts to help people maximize their returns and minimize their tax-time angst:
- Open and contribute to a tax-deductible Individual Retirement Account (IRA). "Contributions to a 'deductible IRA' not only help grow a retirement nest egg, they may lower a person’s taxable gross income, potentially reducing their income tax and social security tax liability," explains FPA member Laurie A. Siebert, a tax expert and financial planner at Valley National Advisers in Bethlehem, Pa. The deductible IRA is mainly for wage earners who don’t participate in (or lack access to) an employee-sponsored retirement plan, though it’s available to others as well, depending on income. Consult with a financial planner for help setting one up.
- If you work for yourself, establish and contribute to a self-employed 401(k) or Simplified Employee Pension IRA (SEP IRA). The tax benefits it provides may exceed those of a deductible IRA thanks to higher contribution limits.
- Pounce on other tax breaks. Examples include the Making Work Pay credit for wage-earners (up to $800), the American Opportunity Credit for education-related expenses (up to $2,500), “green” tax credits for energy-efficient appliances and home improvements, the Savers Credit for retirement plan contributions (up to $2,000), and more. Keep in mind, eligibility for these tax breaks varies according to income levels, etc.
- Research pays. “The bottom line is, you don’t know what you don’t know,” says Siebert. A couple hours of research on websites such as www.irs.gov can yield hundreds, even thousands of dollars, in tax savings. “The IRS website has tons of information,” Siebert adds. “You just have to be patient and look around.”
- Gotten married? Purchased a home? Had a child? These kinds of life events may significantly impact one’s tax tab. For example, people who purchased a home from January through April 2010 may capitalize on a now-expired federal home buyer tax credit of $6,500 to $8,000.
- Time to itemize deductions? When circumstances change, people who haven’t itemized deductions on past tax returns may find it worthwhile to do so for 2010. Examples of when it may make sense to start itemizing include a substantial decline in income, incurring significant medical expenses, buying a home or losing a spouse.
- Talk with a tax expert. However diligent your research, the sprawling, ever-changing tax code makes it easy to miss a meaningful tax break or loophole. An investment in a savvy tax adviser or accountant can pay for itself many times over by finding provisions that might otherwise go overlooked.