The holidays are over and the New Year has begun, and before you know it, the annual tax season is upon us. Nobody likes paying and filing taxes, but it is something that has to be done. Last year may have flown by fast, but believe it or not, there are still things that you can do right now to lower your taxes. Not every idea will apply to every New Bedford credit union member, so if you aren’t sure, contact your local tax professional before trying out any of these credit union member tax tips.
#1 – Contribute to IRA Retirement Accounts
Federal law states that you have until April 15 to make contributions through your New Bedford credit union to your Massachusetts retirement account. IRA or Roth retirement accounts that receive deposits up until April 15th will count for last year’s taxes. Other types of retirement, including SEP or Keogh, can receive deposits through October 15th if an extension is filed to even further decrease your tax liabilities.
The amount of money that you save will depend on your unique situation. For example, credit union members who are in the 25 percent tax bracket can save $1375 in taxes in the first year with a deductible IRA contribution of $5500. Future contributions can save even more money over time, depending on the income tax bracket you are in, the number of years that the money stays invested and the amount of your annual contributions.
#2 – Estimated Tax Payments
If you don’t pay enough money throughout the year in your withholding, you might end up owing a huge tax bill plus penalties and interest. Whether the reason is due to a mix-up on withholding, an unexpected gain from selling stock or any other financial gain, the IRS demands 100 percent payment of the prior year’s tax liability or they charge what is known as an underpayment penalty.
You can make last minute estimated tax payments to try and get the amount that you will owe down. This can be done throughout the year or even in the months between the New Year and the final filing date of April 15th. Just make sure you don’t overpay. It is better to owe a little bit each year than to have the government hold onto your money interest-free until the refunds come back. Speak with your New Bedford credit union representative about setting up an interest-earning account to stash tax payment money that you plan on using for future tax years as a better investment than overpaying the federal government.
#3 – Stay Organized and Save Everything
It cannot be stressed enough the importance of saving all of your receipts and anything else that you will need to properly file your taxes. Staying organized throughout the year will help take a bite out of tax filing, making it easier to get everything together and file on time.
Keep a file folder or tax box of documentation that includes the previous year’s tax return, W-2s that you receive from your employer, any 1099s that you receive in the mail, receipts, work orders, purchase orders and anything else that will help you file. You can use online programs or software programs to help you keep track throughout the year.
#4 – Always Itemize
Many taxpayers refuse to itemize their taxes because they think it’s just too complicated. The truth is, there are so many more deductions that can be taken if you just take the time to itemize. Self-employed or work-at-home individuals can save a lot of money through itemization, as can students, homeowners and people who have a lot of qualified medical expenses.
Other deductions include job-hunting expenses, tax preparation fees, expenses related to running a business, car use for business purposes, professional dues, required uniforms and other related items. Just make sure that you have all the required forms in order. If you aren’t sure, consider hiring a tax professional to help you with your taxes for at least the first year of itemization until you can learn how to do it yourself.
#5 – File and Pay On-Time
If you are unable to complete your tax return on time, make sure to file form 4868 prior to April 15th. This form will give you a six month filing deadline until October 15th. However, you must state an estimate of your tax liability for the year and pay any balance that you believe will be due with your request. Making estimated tax payments with your extension request will help to reduce or eliminate any late-payment penalties that could be assessed if you owe money when you file in October.
This is perhaps one of the most important credit union member tax tips. If you pay late you will get a late-filing penalty of 4.5 percent for each month that the taxes were not paid, plus a late-payment penalty of 0.5 percent a month for the taxes being due. The maximum penalty is 22.5 percent and the late-payment penalty cannot exceed 25 percent, however this can mean a huge difference in the amount that you eventually owe. Form 4868 stops the late-filing penalty, but the amount due still must be paid to avoid the late-payment penalty.
Other Ways to Save at St Anne Credit Union
There are other ways for New Bedford credit union members to save at tax time and all year long. There are many savings and investment opportunities that can be used in conjunction with these credit union member tax tips. Consider opening a Massachusetts retirement account through St Anne. Speak with one of our customer service representatives to find out more about all of the savings opportunities and investment programs available to help you with estimated tax payments, reducing your tax liability and helping you to stay on good terms with the IRS.