We have all been there. It's the beginning of January, and you have a nagging feeling of dread since you missed the December 31 tax deadline for some deductions. Now you're wondering, "Is it game over for my tax savings this year?". Short answer: no. There are still steps you may do to lessen the shock and potentially regain some lost ground.
Read on to learn the best methods to recover-especially if you're self-employed-and save some of those important deductions.
1. Check whether you may still contribute to a SEP-IRA
If you are self-employed or operate a small company, a Simplified Employee Pension (SEP) IRA may be a valuable tool for last-minute tax savings, even after December 31. Why? Because you may typically make contributions to a SEP-IRA until the conclusion of the extension period, regardless of when the return is submitted. In addition, if you do not already have a SEP account, you may create one up to the extended due date.
How does this help?
- Larger contributions: Depending on your income, you may contribute up to 25% of your net self-employment earnings (up to a specific limit).
- Extended deadline: You have until the due date on your return (plus extensions) to finance the plan. Translation: If you act before filing, you may still claim a significant deduction.
Pro Tip: Ask our office whether a SEP-IRA or another retirement plan (such as a Solo 401(k)) may be a better match. The correct strategy may have a huge influence on your bottom line.
2. Contribute to a Traditional IRA If You Are Eligible
Even if you're not self-employed, you may still be allowed to make an IRA contribution for the previous tax year. Traditional IRAs normally accept contributions until the tax filing deadline, which is usually April 15 (or the following working day if the 15th is a weekend or legal holiday).
Why think about it?
- Potential tax deduction: Contributions may be entirely or partly deductible based on income limitations.
- Tax-deferred growth: higher money in your account today may result in higher growth later.
Heads-Up: When you make the deposit, be sure to include the previous year's donation. Otherwise, it may revert to the current tax year, preventing you from receiving the desired last-minute deduction.
3. Tie up any loose ends in your bookkeeping
If you only update your books once a year, now is the moment to organize them-before filing. Missing receipts and improper spending classification may lose you substantial deductions (and raise red flags with the IRS).
Quick Checklist:
1. Reconcile your bank accounts Determine why the bank balance differs from your accounting software.
2. Find any missing receipts: A $20 receipt may not seem like a big deal, but losing 10 of them equals $200 in undocumented expenses.
3.Categorize expenditures correctly: Was the lunch meeting actually business-related? Did you place your home office costs in the appropriate category?
4. Check the 1099s: If you hired contractors, make sure you have the proper paperwork (and that their information is accurate).
Remember, keeping accurate records is more than just a checkbox exercise. They are your greatest defense if the IRS ever comes calling.
4. Review any last-minute business purchases
If you operate a small company, you may have raced to make purchases before the new year to take advantage of a deduction. However, any things purchased must be put into operation by December 31 to qualify for that year's taxes. Consider getting a new computer or piece of equipment. If you did not utilize it, you may have to wait until next year to get the deduction.
- Fortunately, even if you missed the December 31 in-service date, you may still deduct the purchase expense in the following tax year once used.
- Consider Section 179 or bonus depreciation for big-ticket equipment to recover more money in the first year of usage.
5. Talk to our office about catch-up strategies
It's not always about what you can accomplish on your own, but rather what a seasoned tax expert can observe from the outside looking in. An adviser may show you more retirement options.
- Consider using any unused credits or deductions from previous years.
- Consider filing an extension to provide time to gather missing items.
- Don't guess. Guessing is what led you here, correct? Instead, invest in competent guidance to ensure that you do not pay any more taxes than necessary.
6. Mark your calendar for next year
Sure, you want to address this year's concerns right now. However, do not forget to avoid the same scramble from occurring again.
- Automate your money. Use software that records and categorizes spending in real time.
- Set reminders: Mark the dates for quarterly anticipated taxes, year-end equipment purchases, and retirement contributions.
- Schedule midyear check-ins. Schedule a meeting with your tax preparer before the December rush.
Next steps: Don't go it alone
Missing the deadline of December 31 is hardly the end of the world, but it is a wake-up call. You still have choices for recouping certain deductions and lowering your taxable income, such as making a SEP-IRA or Traditional IRA contribution, or just cleaning up your books.
Are you ready to explore your options?
Our agency specializes in assisting busy professionals and businesses like you through the maze of missed deadlines and optimizing every available deduction. Contact us now to schedule a fast conversation. We'll help you figure out which techniques are best for your case, so you can file on time and on track this season-and (hopefully) be in better condition for next year.
Still feeling the end-of-year dread?
Let's clear things up-together. Schedule a call with our office and we'll teach you how to catch up while keeping more money in your pocket.
