Here’s What You Should Be Doing Before the Tax Deadline
While tax day is usually on April 15, due to the COVID-19 pandemic, the federal (and some state) filing deadlines were changed to May 17, 2021. That means the filing due date is almost here and if you haven’t submitted your taxes yet, you need to take action. If you aren’t sure what you need to handle, here’s what you should do to make sure you meet the tax deadline.
Tackle Your Federal (and State) Returns
If you have everything you need to file, submit your federal and state tax returns by May 17, 2021. Filing a return late comes with some serious penalties, even if you are only a bit behind the deadline.
Ideally, you’ll want to file electronically. This gives you confirmation that you submitted your tax return on time, creating a level of protection. Plus, it’ll process faster, which works in your favor, especially if you’re owed a refund.
When it comes to state returns, it’s important to note that they may have separate deadlines. For some states, that deadline is technically already past, so you should file quickly to minimize any penalties. Others align with the federal deadline, including this year’s extended ones. While a few give residents more time, by filing now, you make sure you won’t forget.
Apply for a Tax Extension
If you legitimately can’t submit your tax return by May 17, 2021, then you should file for an extension. Applying is completely free and is surprisingly straightforward.
In most cases, all you’ll need to do is submit a Form 4868 to the IRS, and you’ll automatically get an extension. With that in place, you’ll have until October 15, 2021, to file your individual tax return. Plus, you’ll avoid failure-to-file penalties, which can be substantial.
Just be aware that if you file for an extension and you owe money, your payment due date isn’t extended. That payment still needs to arrive by May 17, 2021. Otherwise, you’ll face some penalties.
However, if you’ll either break even or end up with a refund, there’s usually no financial downside to delaying your filing. In some cases, it may even work in your favor. For example, it could give you extra time to find documents to prove you are eligible for credit or to wait for the late arrival of a critical tax form, such as a missing or corrected Form 1099 or Schedule K-1.
Send More Money to Your IRA
In many cases, the cutoff for funding your IRA for the current filing year is tax day. For 2020, that means you can make IRA contributions as late as May 17 and have them count toward your 2020 taxes.
If you haven’t already maxed out your 2020 IRA contributions, doing so could work in your favor. If you have a traditional IRA, those contributions may be tax-deductible, allowing you to reduce your tax burden before you finish filing.
For lower-income households, stashing money in an IRA could also make you eligible for the Saver’s Credit. This can also reduce your tax burden, as the credit can be worth as much as $2,000.
Otherwise, maxing your any IRA for 2020 could be a smart move. It may give you a chance to save more overall, as you’ll get a refreshed contribution limit for 2021.
Fund Your Solo 401(k) or SEP IRA
If you’re self-employed and have a Solo 401(k) or Simplified Employee Pension (SEP) IRA, you also have until May 17, 2021, to make contributions that apply to the 2020 tax year. In fact, if you file for an extension, you actually get until October 15, 2021, to fund one of those plans.
In many cases, these contributions can be deductible, at least partially. With a Solo 401(k), a portion of your “employer” contributions are considered business expenses. With a SEP IRA, there are deduction options, as well.
Contribute to Your 2020 HSA or MSA
Another deadline that got extended involves contributing to your 2020 health savings account (HSA) or medical savings account (MSA). Both of those can be funded until May 17, 2021, giving you more time to set money aside and potentially secure a deduction for your 2020 taxes.
Before you contribute more, you want to make sure you haven’t reached the contribution limit. That way, you’ll get a bigger tax benefit now and still have room to set money aside with 2021 contributions.
File Schedule H for Household Workers
If you have a qualifying household worker – like a nanny, landscaper, or maid – you may need to file a Schedule H by May 17, 2021. This is crucial for addressing employment taxes associated with paying these kinds of household professionals.
Now, not everyone who brings in household workers needs to file Schedule H. If you pay a bill for services through a company and aren’t paying the worker in cash wages, you may not have this responsibility. However, if you hire the worker independently, you may need to go down this road.
If you aren’t sure, it’s wise to discuss the situation with a tax professional. They can help you gauge your relationship with the household worker, ensuring you handle everything correctly.
Snag Your Unclaimed 2017 Refund
If you didn’t file your 2017 tax return and are owed a refund, you have until May 17, 2021, to complete your 2017 and snag that unclaimed money. If you don’t have your 2017 tax documents, you can request an income transcript from the IRS.
The transcript contains your reported wage information, which may be all you need to file. If you don’t handle this by May 17, 2021, you’ve missed the deadline to claim that refund.
Did you wait until the tax deadline to file, or have you already tackled it? Can you think of any other tips that might help filers as they finish up their taxes? Share your thoughts in the comments below.
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