October means glorious foliage and all things pumpkin -- and it's hardly the season to be thinking about taxes, right? Wrong. Now's actually the perfect time to put some thought into your taxes, even when you're busy enjoying the start of autumn. Here are a few key moves to focus on this month.
1. File your tax return by the extension deadline
If you didn't have your taxes ready by the April deadline and filed for an extension, you'll need to start gathering your paperwork so you can file your return by Oct. 16. Keep in mind that if you owe the IRS money, you'll want to work on paying off your balance as quickly as possible. That's because for every month you're late on that payment, you'll be charged 0.5% of what you owe, up to a maximum of 25%. Worse yet, that calculation will date back to the original tax filing deadline of April 18 earlier this year.
Contrary to what you may have been led to believe, a tax extension doesn't buy you more time to pay your tax bill; it simply gives you more time to file your actual return. So if you're first reviewing your paperwork now and see that you've underpaid your taxes, be prepared to not only fork over what you owe but interest as well.
Furthermore, be sure not to miss the Oct. 16 deadline, because if you do and you owe money, you'll face a failure to file penalty equal to 5% of your unpaid balance per month, up to a maximum of 25%. That's 10 times the penalty for simply being late.
2. Work on using up your FSA balance
Opening a flexible spending account (FSA) is a great way to shave money off your tax bill. But if you're not careful, you could end up losing money in the process. That's because you're required to use up your FSA balance by the end of your plan year, which, in many cases, coincides with the end of the calendar year. In other words, if you're sitting on a $600 balance and you fail to spend it on qualified medical expenses by the end of the year, you'll forfeit those funds.
Now you may be thinking: "I have three more months till 2017 comes to a close. What's the rush?"
Just remember that doctors tend to go on vacation or book up during the holiday season, which means that unless you schedule your appointments well in advance, you can forget about seeing specialists between Thanksgiving and Dec. 31. We also tend to get busy around the holidays, so you're better off spending down that balance now, while time allows.
3. Do some fall cleaning -- and donate items you don't need
Though spring may be the more popular time for a major house cleaning, if you missed that boat back in April or May, you may want to refocus now. That's because the more items in your home you discover you no longer need, the more you'll be able to donate -- and snag a tax deduction in the process.
As long as you obtain a receipt and keep a detailed list of the items you donate, you can take a deduction for their fair market value, or the amount they'd currently go for based on their present condition. So if, for example, you're donating a jacket you bought for $300 five years ago, and it's seen some wear and tear, it may only be worth $50 at present, and that's the number you'll need to go with for tax purposes. If you're not sure what your donations are worth, you can use this guide as a quick reference.
As is the case with medical appointments, you'll probably have more time to not only sift through your belongings, but run them over to a registered charity, before the holidays kick into full gear. That's why it pays to tackle this project now, before time gets away from you.
4. Increase your retirement plan contributions
Saving more money in your 401(k) or IRA will work wonders for your nest egg down the line. But because all traditional (non-Roth) retirement plan contributions are made with pre-tax dollars, the more you sock away now, the more you'll reduce your tax bill.
Imagine you're currently putting $500 a month into your 401(k), and that your effective tax rate is 25%. If you manage to up your contributions to $800 a month between now and the end of the year, you'll shave an additional $225 off your 2017 taxes. Now keep in mind that you can contribute to your 2017 IRA even once 2018 rolls around; but if you're saving in a 401(k), you'll need to get those funds in by year-end if you want them to count.
Though you'd probably rather spent these next few weeks leaf peeping and sipping spiced lattes, don't miss the opportunity to improve your tax situation. A few hours of planning this month could save you a fair chunk of money in the long run.
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