It is tax season again, and there are some tips that can help you limit your tax liability and save money. Tax preparation experts predict that many individuals in Ohio will miss allowable credits or deductions, and will end up paying more than necessary to the state and federal government. Ohio is not alone either, this is true for individuals in all 50 states. Below are some tips that can help make this tax season easier on your wallet.
Tax Tip #1: Make Sure You Get Every Tax Credit You Qualify For, Including Green Energy Credits
The federal government offers many different tax credits, and these credits will reduce the tax that you owe. For every one dollar that you have in tax credits the taxes you owe are reduced by one dollar. Some of the most common tax credits are the Child Tax Credit and the Earned Income Tax Credit, but there are many others that you may qualify for as well. There are also tax credits offered by the state of Ohio that can help reduce your state tax liability.
Many individuals often forget that there are green energy credits that can help lower the taxes you owe to the federal government, and the IRS will not automatically add these credits to your tax return. If you do not claim the credits you are entitled to then you will pay more than necessary in taxes. Some of the green energy tax credits include credits for purchasing electric vehicles, the Nonbusiness Energy Property Credit, and many more. There is even a Residential Energy Efficient Property Credit. To claim these credits you must be eligible for the specific credit being claimed, and you must itemize any green energy purchases made as a consumer. These credits can help lower your tax bill significantly in some cases.
Tax Tip # 2: Don’t Be Late In Filing Your Returns
Most years both federal and Ohio income tax returns are due on April 15 but that is not the case this year. This year you have an additional 2 days before your returns must be filed, and the deadline for both the IRS and the state of Ohio this year is Tuesday, April 17. This delay is caused by two different reasons. In 2012 April 15 falls on a Sunday, so the deadline is automatically extended to the next business day which is Monday April 16. However April 16 is a federal holiday to commemorate the signing of the Compensated Emancipation Act by President Abraham Lincoln, and this signing occurred on April 16, 1862. This holiday also extends the deadline for federal taxes, and Ohio adjusted the state due date as well. It is very important that you file your taxes on time, because the interest and penalties for filing late can add up quickly.
Tax Tip #3: Ask For An Automatic Extension If Needed
If you can not file your federal tax returns by the April 17 deadline do not panic, but make sure to apply for an automatic extension. When you apply for an automatic extension this gives you additional time to file your tax returns, up to 6 months in most cases. Remember though that this will not change the fact that you must pay any taxes owed by April 17, whether or not you file your return by this date. When an automatic extension is granted this only extends the time you have to file your return, not the time you have to pay any taxes that you owe. If you do not estimate the amount owed and pay these taxes by the deadline of April 17 you will be hit with interest and penalties, and these can be expensive.
Tax Tip #4: Increase Your IRA Balance
You can make contributions to your IRA account if you did not contribute the maximum amount allowed during 2011, but this must be done before April 17, 2012. If you were allowed to contribute $6,000 and your income was at least this amount but your contributions were less you can make up the difference as long as the contributions are made by the filing deadline of April 17. In 2011 the maximum amount of contributions to an IRA was $5,000, and if you were at least 50 years old you can contribute an additional $1,000. Your total IRA contributions for the year can not exceed your income though, so if you only made $3,000 this would be the maximum you can contribute to an IRA in 2011. IRS Publication 590 offers more information and details on IRAs and the tax consequences and advantages.