Five Very Last Minute Tax Tips

by smallbizbee · 2 comments

The following guest post from top selling author, attorney, tax and small business expert, Barbara Weltman is extremely timely for people like myself who put off taxes until the last minute. Here Barbara shares her best last minute tips for tax day.

In today’s economic environment, every financial milestone is an important one. It’s critical that small business owners have the right tools and know-how to properly manage their taxes year-round so they’re not dealing with undue stress on the days leading up to April 15th. The right solutions can help small business owners efficiently and easily manage their business’s finances and employee tax withholdings, so they can spend more time running their business. With the April 15th deadline looming, here are some things you can still do to reduce your tax bill and make the filing process a little easier.

5 Very Last Minute Tax Tips

1. Contribute to a deductible IRA or HSA. Yes, even though 2008 is over, you can put money into an IRA or health savings account (HSA) for the 2008 year (assuming you’re eligible for these accounts) and deduct the contributions on your 2008 return. You must act by April 15th. IRA contribution limits for 2008: $5,000, or $6,000 for those 50 or older on December 31, 2008. HSA contribution limits for 2008 depend on whether you have self-only coverage under a high-deductible health plan, or family coverage; those 55 or older on December 31, 2008, can add another $900.

2. Double check for carryovers. You may have forgotten tax breaks from your 2007 tax return that can be used to cut your 2008 tax bill. Look for capital loss carryovers (reported on last year’s Schedule D of Form 1040), which can be used to offset any capital gains in 2008 if you had them, plus up to $3,000 of ordinary income. Other carryover possibilities: home office deductions, charitable contributions, and net operating losses.

3. Settle up your tax bill. If you owe a small amount, pay it by check or charge it to a major credit card. While the IRS doesn’t charge a fee for paying by credit card, there’s a 2.49% convenience fee imposed by the credit card processor, so if you charge $1,000 in taxes, you’ll pay $24.90 to the processor—a hefty cost for racking up frequent flyer miles. Larger bill? If you can’t pay in full, ask the IRS for an installment agreement by filing Form 9564 This usually allows you to pay what you owe, plus interest, over the next three years.

4. File electronically. If you wait until the last minute, avoid lines at the Post Office, as well as save paper and postage, by using e-File to submit your return. Electronic filing also ensures that your return is free from math errors and has all the required information (e.g., Social Security numbers) for processing; you’ll receive an electronic acknowledgment from the IRS that the return has been accepted for filing. You may even be eligible to use FreeFile to prepare your return online and file it electronically at no cost. Bonus: If you’re owed a tax refund, you’ll get it sooner by filing electronically than you would if you send in a paper return.

5. Put your refund to work. If you’re owed money, use it to create future tax savings. You can have the IRS deposit your refund directly into an IRA, an HSA, or a Coverdell education savings account. Provide the account information (account number and routing number). Make sure the account custodian credits your refund to the correct tax year (e.g., your 2008 is applied toward your 2009 IRA contribution). You can even split your refund into two or more accounts (file Form 8888 to provide all account information.)

Caution: If you had a large refund, recognize that it amounts to an interest-free loan you made to Uncle Sam. To avoid this next year, reduce quarterly estimated tax payments related to your business income to better equal your actual tax bill for the year. Under a new rule for small business owners (more than half your income is derived from a small business and your 2008 adjusted gross income was under $500,000), you won’t be penalized for underpaying estimated taxes and you’ll improve your cash flow by pegging 2009 estimated tax payments (plus any tax withholding) at 90% or more of last year’s tax bill.

Final word. If, for any reason, you don’t want to think about taxes now, be sure to obtain an automatic six-month filing extension. File Form 4868 no later than April 15 to avoid late filing penalties. Also, if you expect to owe money, pay as much of it as you can now to minimize or avoid interest and penalties for late tax payments.

About Barbara

Barbara Weltman is a top selling author, attorney, tax and small business expert. Barbara serves as an expert on the Small Business Online Community, powered by Bank of America. She recently conducted an expert forum on the Small Business Online Community, where she answered questions about the impact of the stimulus package on small business owners. Barbara has also authored several books include "J.K. Lasser's Small Business Taxes" and "The Complete Idiot's Guide to Starting a Home-Based Business."

Can’t visit Small Biz Bee on a regular basis? You can stay up to date by having the latest Small Biz Bee news delivered to you for free via RSS or Email.

For exclusive Small Biz Bee content and offers, sign up for our free newsletter: