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If you haven’t finished your taxes yet, don’t panic.
You’re much more likely to make mistakes if you’re under stress and feeling rushed. Take a deep breath and set aside some time to tackle your taxes with a clear mind.
We’ve put together 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 U.S., personal tax returns are due April 18, 2022. Unlike in 2020 and 2021, the IRS is sticking to its deadline this year.
But there are still pandemic-related complexities to consider. Work with your tax advisor to review any stimulus payments or Advance Child Tax Credits you received to ensure you received the appropriate amounts.
If you received a Paycheck Protection Program loan, your tax advisor can work with you to ensure you follow IRS guidelines. Expenses paid with PPP loan proceeds are tax-deductible even if your loan was forgiven, so don’t miss this.
Business owners may 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 qualified wages up to $10,000 per employee per quarter paid through September 30. That means you could be eligible for a tax credit of up to $21,000 per employee.
2. Find a great tax advisor
If you aren’t working with one now, it may be challenging to find a good one this late in the game. Still, invest time in your search. It’s not too soon to start thinking about your 2022 taxes. Referrals are a great place to start.
Your tax advisor should become a trusted member of your wealth 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 strategy for permanent tax reduction that aligns with your wealth strategy.
3. Maximize deductions
There’s no reason to pay more tax than you owe. Yet, we often see people do just that because they miss out on taking qualified deductions.
Remember: Tax deductions aren’t loopholes. Instead, these are incentives the government has intentionally included in the tax code to encourage people to spend money on things the government believes benefit the larger society, such as building a business or investing in housing.
If you haven’t been tracking throughout the year, take the time to review your financial transactions and other expenses. With each one, ask: How can this be deductible?
Deductions may include:
- Home office
- Charitable contributions
- Child care
- Student loan interest
- Education and training
- Business travel
Work with your tax advisor on this. Even now, there are still some opportunities to add to your 2021 deductions by contributing to certain retirement plans — including IRAs and SEPs — before April 18.
4. Check on your state taxes if you have a pass-through entity
Most U.S. businesses are pass-through entities, or PTE, a type of business structure where the business’s profit flows through to the individual income tax of owners and members. Some states have created an incentive for these businesses in the form of an elective pass-through entity tax, so it’s important to know the rules in your state.
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 count on your tax advisor to include in your planning.
5. Ask for an extension if you need one
Request an extension if you can’t complete an accurate return by April 18, but don’t wait to make a payment if you owe additional tax. Extension or not, all tax payments are due on April 18 to avoid penalties and interest.
If you can’t make your full payment, talk with your tax advisor about the best strategy. Different waivers may apply to your situation and help minimize penalties.