Last Minute Tax tips
1. You Can Still Open an IRA for the 2021 Tax Year
Saving for retirement is a core element of many Fool members’ financial plans, and IRAs play a vital role in preparing your finances for your golden years. Although contribution limits on IRAs — $6,000 for those under age 50, and $7,000 for those 50 or older — are less than what you can contribute to a workplace 401(k) plan, IRAs offer far greater investing flexibility. While many 401(k)s are limited to mutual funds, you can buy individual stocks and a wider range of other investments for your IRA.
IRAs are also one of the only tax breaks you can claim after the end of the tax year. You can contribute to an IRA through the regular tax filing deadline for the tax year in question, which means that 2021 IRA contributions are still available through April 18.
If you qualify, a traditional IRA contribution can even cut your tax bill. Many people are eligible for a tax deduction on traditional IRA contributions, which will lower your taxable income and total tax due. Depending on your tax bracket, a contribution can save you hundreds or even thousands of dollars right now as well as putting you in better position to be financially secure in retirement.
2. Health Savings Accounts Can Be an Even Better Tax Break
Health savings accounts aren’t as well-known as IRAs, but they can be even more valuable for taxpayers. Unfortunately, HSAs are available only to those who have qualifying high-deductible health plan coverage, which requires a minimum deductible of $1,400 for individual coverage and $2,800 for family coverage. That limits the pool extensively since more comprehensive healthcare coverage disqualifies you from making HSA contributions.
Nevertheless, for those who qualify, HSAs are a great last-minute tax break. Contributions for the 2021 tax year of up to $3,600 for self-only coverage and $7,200 for family coverage are available, and they’re deductible from your income on your tax return. Even better, withdrawals later on are tax-free if used for qualifying medical expenses, and you can roll over HSA balances into the future as long as you want. That combination of benefits makes HSAs arguably the best investing vehicle if you’re allowed to use them.
3. Get an Extension — But Don’t Forget to Pay
If these last few days tick by and you just can’t get your returns done, don’t fret. Automatic extensions are readily available and easy to get. All you have to do is to fill out and file IRS Form 4868 before the April 18 deadline. That’ll give you six extra months to get your returns in.
However, just because you can extend your time to file your tax returns doesn’t mean the IRS will give you a break on paying the tax you owe. Penalties of 0.5% per month on your unpaid balance will start to accrue after the April 18 deadline if you don’t include a tax payment with your extension request. Of course, if you’re due a refund, you won’t have any penalty — you’ll just be delaying when you’ll get your refund check from the IRS.