Tax Day is Monday, April 17th…except for some municipal taxes in Ohio that are still due on April 15th. So, at this late date, what can you do to lower your taxes?
1. Make a contribution to an IRA, if you’re eligible. You’re allowed to make a $4,000 contribution (up to the amount of your compensation); if you were 50 any time during 2005, you can make a $4,500 contribution. There are income restrictions to making an IRA contribution. For full details, see Publication 590. You have until April 17th (in most cases) to make a traditional IRA contribution.
2. Make a contribution to a SEP IRA, if you’re eligible. SEP IRAs are for the self employed. You can contribute up to $42,000 or 25% of your compensation, whichever is less. However, there’s an adjustment that must be made for the impact of self-employment tax. You can start a SEP (and contribute to a SEP) any time before you file your return, including extensions. (If you start a SEP after April 17th, you do need to have filed an extension. The final deadline is October 15th.) See Publication 560 for more information.
3. Consider the home office deduction. Many taxpayers have been scared to approach this deduction because of fear of IRS audits. Well, I strongly believe that if you’re eligible for a deduction, you should take it. Now, there are some strict rules that you must meet in order to take the home office deduction:
“You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:
– As your principal place of business for any trade or business;
– As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business.”
Still, many have avoided taking this deduction because of fear, and I don’t think that’s justified at all. You can find more information on this deduction in Publication 587.
4. Don’t rush! Consider filing an extension. If you’ve just decided to use a professional tax preparer, and you’re just now (one week before the deadline) going to him or her, he or she will most likely insist on an extension. (If not now, very, very, soon he’ll insist.) Those who have been practicing for any length of time are extremely busy in the last week of tax season, and it’s hard to squeeze a new client in before the deadline. It’s not that we won’t accept new clients; rather, we won’t be able to do a professional quality job on your return if we took you on and agreed to finish your return before next Monday. We’ll work with you to make an estimate of what you owe, generate the extension forms, and then prepare your return after the deadline.
5. Remember Your State and Local Tax Deadlines. These can differ. For example, municipalities in Ohio have deadlines of April 15th. Iowa has a deadline of April 30th. Massachusetts has a deadline of April 18th, because the 17th is a holiday. And if you send your IRS return to the Andover, MA service center, you have an extra day, too.
If you are one of the lucky few who have a scheduled appointment with your tax preparer this week, try and be organized. He’ll appreciate it, because he’s been swamped for several weeks. And it will help to get your return done quickly.