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We’ve all been there: the new year rolls around, and a sense of panic sets in. You realize you’ve missed the December 31 tax deadline for crucial deductions. Now, the big question looms: is it too late to salvage your tax savings? The good news is—no, it’s not over. While some opportunities may be gone, there are still effective strategies to help you recover and minimize the impact.
This guide will walk you through six key steps to maximize your deductions, clean up your finances, and prepare for a smoother tax season next year.
1. Contribute to a SEP-IRA for Potential Tax Savings
For self-employed individuals and small business owners, a Simplified Employee Pension (SEP) IRA can serve as a powerful tool to capture missed deductions, even after December 31. Unlike some other accounts, SEP-IRA contributions are allowed up to the extended tax filing deadline. That means you can still take advantage of this option if you act before submitting your return.
How a SEP-IRA Can Help You:
Higher Contribution Limits: Depending on your earnings, you can contribute up to 25% of your net self-employment income, capped at $66,000 for 2023.
Extended Deadlines: Contributions can be made up until your filing deadline, including extensions.
Pro Tip: Don’t have a SEP-IRA yet? No problem. You can still open one by the extended due date and make contributions for the prior year. Talk to our team about whether a SEP-IRA or another retirement plan, like a Solo 401(k), is the best choice for your situation.
2. Fund a Traditional IRA Before the Tax Filing Deadline
Even if you’re not self-employed, you can still benefit from contributing to a Traditional IRA. These accounts typically allow contributions up until the tax filing deadline, which is usually April 15 (or the next business day if it falls on a weekend or holiday).
Why Contribute to a Traditional IRA?
Potential Tax Deductions: Depending on your income, you may qualify for a full or partial deduction.
Tax-Deferred Growth: Contributions can grow tax-deferred, meaning more savings over time.
Important Tip: When making your contribution, specify that it’s for the prior tax year. Otherwise, the default may apply to the current year, which could cost you valuable deductions.
3. Tidy Up Your Bookkeeping for Hidden Deductions
Accurate bookkeeping isn’t just about keeping records—it’s about uncovering potential deductions and avoiding IRS audits. Start the new year by thoroughly reviewing your books and ensuring they’re in order before you file your taxes.
Quick Bookkeeping Checklist:
Reconcile Bank Accounts: Ensure your records match your bank statements.
Locate Missing Receipts: Missing receipts can lead to missed deductions. Gather all documentation, even for small expenses.
Categorize Expenses Correctly: Double-check that all expenses are labeled accurately, especially for items like home office deductions or travel expenses.
Verify Contractor Information: Ensure you have complete and correct 1099 forms for all contractors you hired.
Remember, accurate records are your best defense in case of an audit and can uncover deductions you might otherwise overlook.
4. Review Year-End Business Purchases
If you made any last-minute purchases for your business before December 31, it’s important to ensure they were placed in service by the end of the year. Items such as equipment or technology only qualify for deductions in the year they’re first used.
What If You Missed the In-Service Deadline?
You can still deduct the purchase cost in the next tax year once the item is in use.
Take advantage of Section 179 or bonus depreciation to maximize the deduction for big-ticket items when they’re placed in service.
5. Consult a Tax Advisor for Tailored Strategies
A tax professional can be your best ally when navigating missed deadlines. They can analyze your financial situation and identify strategies to help minimize your tax liability.
What a Tax Strategist Can Help You With:
Recommending additional retirement savings vehicles.
Identifying unused tax credits or deductions from previous years.
Exploring options for filing an extension to buy time for gathering missing documents.
Pro Tip: Guesswork can cost you. Instead, rely on professional advice to ensure you’re maximizing every possible deduction and minimizing your tax burden.
6. Plan Ahead for Next Year’s Tax Season
Once you’ve addressed your current tax challenges, it’s time to focus on avoiding the same pitfalls next year. Implement proactive strategies to make tax season smoother and stress-free.
Steps To Stay Organized:
Automate Expense Tracking: Use bookkeeping software to monitor and categorize expenses throughout the year.
Set Reminders for Key Deadlines: Mark important dates for quarterly estimated taxes, year-end purchases, and retirement contributions.
Schedule Mid-Year Check-Ins: Don’t wait until December. Regularly meet with your tax advisor to review your finances and make adjustments as needed.
Next Steps: Don’t Go It Alone
Missing the December 31 tax deadline isn’t the end of the world, but it’s a reminder to get organized and take action. Whether it’s contributing to a SEP-IRA, funding a Traditional IRA, or cleaning up your books, there are still ways to reduce your taxable income and secure valuable deductions.
At TPSA CPAs, we specialize in helping busy professionals and small business owners navigate complex tax situations. Let us help you recover lost deductions, reduce your tax burden, and prepare for a more streamlined process next year.
Contact Us Today! Schedule a consultation with one of our tax experts, and we’ll guide you through the best strategies for your unique financial situation. Together, we’ll ensure you’re on track for a more successful tax season.
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