You may assume that there are no more tax minimization strategies to engage in after December 31. While most of your tax-lowering strategies do come before the new year, there are still steps you can take now, and all the way up until the filing date to make the process easier, and cheaper, and help reduce your tax burden.
For instance, you can still make IRA contributions that are tax-deferred that count towards your 2022 tax year all the way up until the filing due date. Contributing to a traditional IRA removes that contribution amount from your taxable income, leaving less money subject to taxes come filing time. Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will grow and compound tax-deferred.
If your payments to the IRS came up short, you may face a larger tax bill than you thought given the associated interest and penalty fees. According to IRS rules, 100% of last year’s tax liability or 90% of this year’s tax is owed. Otherwise, you will owe what’s called an underpayment penalty. What’s more is that if your AGI (adjusted gross income) for 2021 was more than $150,000, you must pay more than 110% of your 2021 tax liability to be protected from your tax year 2022 underpayment penalty.
However, there are ways to make sure this predicament isn’t worse for you than it needs to be! The date you need to keep in mind is January 15! If you make an estimated payment by January 15, you can erase penalties for fourth-quarter taxes, but you will still owe a penalty for earlier quarters if you did not send in any estimated payments at that time.
We’re only scratching the surface of ways to help optimize your tax situation. And that’s not to mention the basics such as getting your W2s, 1099s, and itemized deduction files organized well before filing time.
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