With just a few weeks left before 2012 tax returns are due, millions of taxpayers are scrambling to get their taxes done. But even as time starts running out, it's not too late to take advantage of some last-minute tax tips that will help you make the last part of tax season a bit less stressful -- and potentially save you some money in the process.
Last-Minute Tax Tip 1: Want a bigger refund? Open a traditional IRA.
By being smart about tax planning, there are many things you can do to reduce your tax bill. Unfortunately, most of those strategies require that you take action before the end of the calendar year. So although it's smart to look at things like timing when you pay deductible expenses in order to maximize tax savings or harvesting tax losses to reduce your tax bill for 2013, it's too late to use those strategies to get an immediate payoff on your 2012 return.
But the tax laws do give you one great way to save on the return you're preparing right now. By contributing to a traditional IRA on or before the April 15 deadline, you may be able to deduct as much as $5,000 from your taxable income on your 2012 return. If you're 50 or older, you can contribute an extra $1,000 on top of that. Those deductions could save you hundreds or even thousands of dollars.
If you open an IRA and want the deduction on your 2012 tax return, be sure to tell your financial provider that you're making a 2012 contribution. Otherwise, it may get reported to the IRS as a 2013 contribution, leading to unnecessary complications.
Last-Minute Tax Tip 2: Have high-deductible health insurance? Put money in a health savings account.
Another last-minute tax break available for some taxpayers is the deduction for contributing to a health savings account. If you were covered by a qualifying high-deductible health plan -- a policy with a minimum deductible of $1,200 for single coverage or $2,400 for family coverage -- then you can contribute up to $3,100 to an HSA for your individual policy or $6,250 for a family policy. Learn more about HSAs from the IRS website here.
Last-Minute Tax Tip 3: Can't pay your taxes? File anyway.
Many people figure that if they don't have the money to pay their taxes, there's no point in bothering to file their return. But if you don't file, the IRS will charge you much larger penalties than if you file but don't pay.
Specifically, the penalty for not filing a return is 5% of the amount of tax due for every month that you're late in filing. But if you file and don't pay, the penalty is far smaller: just 0.5% of your outstanding tax bill for every month. In other words, if you file, you can save 90% on penalties even if you can't pay. So don't hold off on preparing your return out of fear that you don't have the money to cover your tax. Get more information from the IRS on dealing with late filing or late payments.
Last-Minute Tax Tip 4: Getting an extension? Don't forget to pay.
If you're not ready to file next month, getting a six-month extension has never been easier. The process is just about automatic as long as you fill out and file IRS Form 4868 (opens a PDF) by the April 15 deadline.
But what many people don't realize is that even if you file for an extension, you still need to pay the tax by April 15. Otherwise, you'll pay the same 0.5% penalty I just discussed. On Form 4868, you'll find a spot for you to include your tax payment. Make your best estimate of what you'll owe and send it in with your extension, and you'll save yourself from up to six months' worth of interest and penalties down the road.
Last-Minute Tax Tip 5: Use all the credits and deductions you deserve.
Tax laws are more complicated than ever, and keeping track of all the tax benefits available to you is nearly impossible. But the biggest mistake taxpayers make is not claiming deductions and credits that they deserve. For instance, millions of eligible taxpayers are entitled to the Earned Income Tax Credit, yet every year, many of them never claim it. Don't be one of them. Here's a full list of credits and deductions from the IRS.
Leaving taxes to the last minute is a time-honored American tradition. But by following these simple tips, you can make the process a little easier, and you may be able to cut your tax bill in the process.