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If you haven’t finished your taxes yet, don’t panic.
You are much more likely to make mistakes if you are stressed and feeling rushed. Take a deep breath and set aside time to tackle your taxes with a clear mind.
We’ve rounded up five last-minute tax tips to help you avoid common mistakes, save money, and set yourself up for greater financial success.
1. Know the facts
In the United States, personal income tax returns are due April 18, 2022. Unlike 2020 and 2021, the IRS is meeting its deadline this year.
But there is still complexities related to the pandemic to consider. Work with your tax advisor to review any stimulus payments or advance child tax credits you received to ensure you received the correct amounts.
If you received a Paycheck Protection Program loan, your tax advisor can work with you to make sure you follow IRS guidelines. Expenses paid with PPP loan proceeds are tax deductible even if your loan has been cancelled, so don’t miss it.
Business owners can also benefit from another pandemic relief program – the Employee retention credit. This gives eligible employers a refundable tax credit for the employer’s share of Social Security tax. In 2021, the credit was equal to 70% of eligible salary up to $10,000 per employee per quarter paid up to September 30. This means you could be eligible for a tax credit of up to $21,000 per employee.
2. Find a great tax advisor
If you’re not working with one now, it can be difficult to find a good one this late in the game. Still, invest some time in your search. It’s not too early to start thinking about your 2022 taxes. References are a great place to start.
Your tax advisor should become a trusted member of your wealth management strategy team. Look for a CPA who will take the time to get to know you and your goals. The best tax advisors will use a proven permanent tax reduction strategy that aligns with your wealth strategy.
3. Maximize deductions
There is no reason to pay more taxes than you owe. Yet we often see people doing just that because they don’t get qualified deductions.
Remember: tax deductions are not loopholes. Instead, they are incentives that the government has intentionally included in the tax code to encourage people to spend money on things that the government believes benefit society as a whole, such as creating of a business or investment in housing.
If you haven’t been tracking throughout the year, take the time to review your financial transactions and other expenses. With each of them, ask: how can this be deductible?
Deductions may include:
- home office
- Charitable donations
- child care
- Interest on student loans
- Education and formation
- Business trip
Work with your tax advisor on this. Even now, there are still opportunities to add to your 2021 deductions by contributing to certain retirement plans — including IRAs and SEPs — before April 18.
4. Check your state taxes if you have a flow-through entity
Most U.S. corporations are flow-through entities, or PTEs, a type of business structure in which business profits are paid to the income tax of owners and members. Some states have created an incentive for these businesses in the form of an optional transfer entity tax, so it’s important to know your state’s rules.
Here’s how it works: The Tax Cuts and Jobs Act of 2017 capped the deduction people could take for their state and local taxes at $10,000. In states with an optional PTE tax, eligible taxpayers can shift the payment of state income taxes from the individual to the entity, where the taxes are fully deductible.
This is one of many tax strategies you should be able to rely on your tax advisor to include in your planning.
5. Ask for an extension if you need one
Ask for an extension if you can’t file an accurate return by April 18, but don’t wait to make a payment if you owe additional taxes. Extension or not, all tax payments are due April 18 to avoid penalties and interest.
If you can’t make your full payment, talk to your tax advisor about the best strategy. Different waivers may apply to your situation and help minimize penalties.