Guest post by Bryant Armstrong, CPA/Partner at Squire & Company, PC
Cinderella’s carriage may have turned into a pumpkin at midnight, but the opportunity to save on your 2011 taxes did not end on December 31. Your options are limited, but there are things you can still consider. Here are three areas that may help on your 2011 return.
Retirement Plan Contributions
You can still fund an individual retirement account (IRA) up to the filing deadline of April 17, 2012. The maximum contribution is $5,000. If you are age 50 or older by the end of 2011, you can contribute $6,000. Certain restrictions apply so please consult a tax advisor to ensure you can fund an IRA.
If you are self-employed, consider establishing a simplified employee pension (SEP). SEPs can be funded up to 20 percent of your self-employment income or up to 25 percent of your salary to a maximum contribution of $49,000. If you extend the filing date of your return, a SEP can be funded up to October 15, 2012. Be aware that if you have employees, you may need to make a contribution for them also.
Consider the Home-Office Deduction
You may qualify for home-office deductions as eligibility rules have loosened somewhat. If you have no fixed location for your business and you use the space for administrative or management activities, you may qualify even if you don’t meet clients there. It’s critical that the space you claim for a home-office deduction be used exclusively for business.
Don’t Forget to Itemize
It’s easy to take the standard deduction, but you may be missing out on valuable deductions. Always consider whether your itemized expenses are more than the standard deduction. Don’t forget about medical expenses that are deductible if they exceed 7.5 percent of your adjusted gross income (AGI). People also often forget about miscellaneous deductions that are subject to a 2 percent AGI limitation. Those expenses include tax prep fees, job-hunting expenses, professional dues and business-car expenses.
There is no magic wand that will make all your taxes go away. However, taking advantage of legitimate deductions will make a difference. If you are in the 25 percent federal tax bracket and can make a $49,000 SEP contribution, the tax savings will be $12,250 plus the savings on your state taxes.
Please consult a tax advisor before implementing any of these suggestions to make sure they make sense for your individual circumstances.
Bryant Armstrong, CPA is a partner with Squire & Company, PC and has been with the company for over 20 years. He specializes in business planning involving internal technology, tax and business strategy. Bryant is a member of the AICPA, UACPA, The Utah Valley Chamber of Commerce, and is a board member of the Utah Valley Entrepreneurial Forum.
This article should not be construed as tax advice from Bank of American Fork. Please seek tax advice from a qualified tax professional.