by Rick Shaffer
1. December 2009 10:23
It may be too late to save on last year’s tax bill, but it’s not too early to consider ways tosave on this year’s taxes. So, following is Part I of a two part series on some things you can do to possibly lower your tax bill this year. Year-Round Tax Tips • Contribute to retirement plans: If you haven’t started already, begin makingregular contributions (up to the full amount you are allowed) to a 401k, 403b, orother tax deductible retirement plan you qualify for at work. Or, if you don’tqualify for such a retirement plan (or are self- employed), set up and fully fund adeductible IRA (individual retirement account). • Fund IRAs until April 15th: If you qualify to contribute to a deductible IRA, youdon’t have to have funded (or fully funded) that IRA by year-end. Rather, youhave up until April 15 to fund (or fully fund) a deductible IRA. And, in somecases, if you file for an extension, you have up until the date you actually file yourcompleted federal tax return to fund (or fully fund) the IRA. • Applying for an extension: If it’s still relatively early in the year, remember thatyou don’t actually have to file your completed federal tax return by April 15th.Instead, all taxpayers can automatically extend the date for filing their completedreturn until October 15th, by filling out and filing IRS Form 4868 by April 15th.However, note that these extensions do not give you additional time to pay anytax you owe. Rather, when filing your Form 4868, you have to make a good faithestimate of the total taxes you owe for last year. If you owe an amount (over andabove the amount withheld plus any estimated taxes paid), you must pay itwith your extension request. If you don’t, interest will be charged on anyshortfall, and you may be charged a penalty. If you are unable to pay the full amount of taxes you owe, you can request andpresent a proposed installment payment plan by filing your completed return andForm 3645. Within 30 days, the IRS will inform you if your proposed paymentplan is accepted. If it is, you will have to pay a processing fee, and you will haveto pay interest (and possibly a penalty) on the amount owed. • Quarterly estimated taxes: If you have self-employment income, start – if youhaven’t already – paying quarterly estimated taxes. In addition to lowering (oreliminating) any amount you’ll have to pay when filing your return, payingquarterly estimated taxes will avoid the possibility of having to pay a penalty forunderpayment of taxes during the year. Finally, this word of advice: since the rules governing all of the above deductions (andother “tax tips” noted) have many exceptions and limitations and can be verycomplicated, be certain to consult with your CPA or tax attorney while preparingand before filing your tax return.
[NOTE: Much of the above information was gleaned from various portions of Rick Shaffer’s E-book, “Your Bottom Line: Fifty Steps to Firm Financial Footing.” (For more information, go to BestMoneyinfo.com.]
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