Make retroactive contributions
Even though we are well into 2022, it isn't too late to contribute to health savings accounts (HSA) and IRAs. Contributing to those can reduce your 2021 taxable income if you're eligible—and build up your savings. That's a win-win. You have until April 15th, 3 days before Tax Day, to make prior-year contributions. Got a side gig? You can also open and contribute to a simplified employee pension plan (SEP IRA) by the deadline to lower your taxable income, even if you have a full-time job too.
Optimize your deductions
Deductions can reduce your taxable income, which can lead to owing less money or getting a bigger refund. Step 1 is deciding which of 2 options you'll pick: the standard deduction or itemizing. Taking the standard deduction means you lower your taxable income by the government's preset amount—no extra math or receipts are required. For your 2021 taxes, the ones you're filing in 2022, the standard deduction is $12,550 for single filers and $25,100 for joint filers.
Choosing to itemize deductions, on the other hand, means your 2021 deduction will add up to more than the standard deduction. The IRS requires you to report every single tax deduction you're claiming, such as qualified charitable donations, state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and medical and dental expenses.
Extra credit : Don't forget about credits. Your tax credit amount may lower your tax bill or increase your refund by exactly that much, versus lowering your taxable income like a deduction.
If you have kids or dependents, you could be eligible for a $3,600 tax credit per qualified child ages 5 and under and $3,000 per child under age 17 (as of end of 2021), depending on your income. That's more than usual, thanks to a temporary pandemic-era rule change. You may have opted to receive some of the expanded child tax credit in monthly payments last year. If you didn't, you'll get the amount you're owed after filing your 2021 return.
Another credit to know: the Recovery Rebate Credit. Starting in March 2021, the third stimulus check was issued to millions of Americans. The maximum credit is $1,400 per person, including all qualifying dependents claimed on a tax return.
Don't be late
The tax-filing deadline isn't one you want to miss; it could cost you hundreds, maybe thousands, of dollars in penalties. There's nothing wrong with doing your taxes last minute, but most people must file by April 18, 2022, to avoid hefty fines.
If you're in a jam, consider filing for an extension. This will give you until October 15, 2022, to finish your tax return. But warning: An extension doesn't push back when you have to pay Uncle Sam if you owe. You have to estimate how much you owe and pay by the April 18 deadline to avoid any penalties.
File even if you can't pay what you owe
Don't have enough money to cover your tax bill? File by the deadline anyway. Skipping filing altogether leads to steeper fines, and the IRS allows you to create a payment plan to schedule payments. If you file your taxes, the interest rate for paying what you owe in installments past the deadline may be a doable 0.5% of your unpaid taxes. For unfiled late taxes, though, penalties can be as high as 5% of unpaid taxes.
Double-check your return
This may sound obvious, but before you file, review all information to make sure it's accurate. The IRS says common errors include entering the wrong Social Security number or bank account details, misspelling names, and forgetting to sign the form. Official government documents, such as tax returns, can be a headache to correct—and having incorrect information could cost you time and money.
Meet the Form 1040
The 1040 is the standard IRS form for individuals filing their tax returns, covering all income from the previous tax year. After factoring in deductions and credits, you can determine on the form how much in taxes you owe or are owed in the form of a tax refund. Some of the language on the 1040 sounds more like accountant-speak than English. Here's your translation.