The calendar year 2016 may be a somewhat distant memory, but the IRS is still keen on examining it from January to December by way of your tax returns. Surely, then, your 2016 tax liability is set in stone already, right? Wrong. Here are 6 steps you can still take now before the filing deadline to lower your tax liability or save you from costly errors.
1) Fund your IRA: believe it or not, contributing between January 1, 2017 and tax day can help to keep your overall tax bill lower. If you did not max out your retirement account by January 1, you still have time to do so before tax day and get it compounded with a tax-deferral. The maximum amounts that can be contributed to IRAs varies depending upon several factors, but at the very least, check it out.
2) Make sure you’re claiming all deductions: the IRS reports that one in five workers eligible to claim the Earned Income Tax Credit (EITC) fail to claim it. This credit can mean the difference between owing the IRS money and getting money back. Also make sure to max out all other deductions including business expense deductions, child care costs, mortgage payments, and tuition payments. This can lower your overall taxable income and thus, your tax bill.
3) Know what you have: if you have money held in a bank account or other financial assets in a foreign country, these need to be reported to the IRS. While reporting this income would not appear to lower a taxpayer’s bill, the monies saved in penalties for failing to disclose more than makes this a viable and worthwhile option (not to mention, it’s the law).
4) Know your health insurance: did you have the minimum essential health coverage for your family in 2016 or did you qualify for some kind of exemption from the requirement to have health care? You need to know this answer, because you will be required to answer it on your tax return and if the answer is “no”, then you must make a payment for the months in which you did not have adequate coverage. If you did have adequate coverage, then you should not be subject to the payment.
5) Make the kids matter: be sure to include the social security numbers of any dependents on your return. Failure to do so will result in the IRS denying the child tax credit and personal exemptions for each dependent. That can add up fast. If you had a baby in late 2016, be sure to get a social security number for the child as soon as possible to be able to include them on your 2016 return.
6) File on time and pony up: even if you haven’t reached a final conclusion as to your overall tax liability, filing on time – at least filing a request for an extension to file by April 17, 2017 – will save you from onerous late fees, especially if you end up owing the IRS. Filing late with a tax liability will equal late-filing penalties up to 25 percent of the tax due.
No matter what your ultimate liability may be, it is always a good idea to consult with a competent and knowledgeable attorney like Morgan Maxwell when it comes to taxes and the IRS. Morgan Maxwell can help navigate you through the labyrinth of rules and laws that ensnare most who venture through them. Contact him today to get started.
Written by E. Morgan Maxwell
Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.
