The yearly tax bill for you and your military family, along with your opportunity to make tax-free or tax deductible investments, contributions and more - is sealed by December 31 of each year.
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Eight Essential Tax Tips to Save Your Money

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The yearly tax bill for you and your military family, along with your opportunity to make tax-free or tax deductible investments, contributions and more - is sealed by December 31 of each year. After January 1, your options to defer income to lower your tax bracket or increase your tax deductions through contributions and investments, become limited. So why wait? There are military-smart ways to protect your money all throughout the tax-filing year.

Use these eight strategies to help lower your taxes by potentially thousands of dollars; save time and money in preparing tax returns; avoid penalties on federal and state taxes; and generally keep more of your money in your pocket.

1. BE ON TIME AT TAX TIME

Remember that as military, you may be entitled to tax deadline extensions including Combat Zone Tax Extensions and more. If you're serving our country overseas, the IRS doesn't want you to be stressed about making the April 15 tax deadline; find out what tax extensions are available to you for your military service.

If you are military but not eligible for a Combat Zone or other military extension and must file by the deadline of April 15 but still cannot file your return on time, file Form 4846 by April 15th for a six month extension on the filing deadline. The form requires an estimate of your tax liability for the fiscal year. Filing the 4846 and requesting an extension by the deadline is essential to avoid late fees and tax penalty payments to the IRS.

2. MAKE A TAX DEDUCTIBLE IRA CONTRIBUTION BY DEC 31

Lower your tax bill this fiscal year by making a tax deductible IRA contribution on or before December 31. Making this tax-free before the end of every year can be a consistent strategy for growing your IRA account.

For example, if $5,000 (maximum contribution that can be made) per year is contributed to your IRA for 20 years, in an investment with an average 10 percent yearly return, that $100,000 will grow to $315,000. Compare that to $232,500 growth at the same contribution rate in a taxable investment. If you are in the 25 percent tax bracket, IRA contributions of $5,000 will save you $1,250 in taxes the first year.

If you choose to contribute to a Roth IRA, your tax benefits have a different flavor. Although your yearly Roth IRA contributions are not tax deductible, all Roth IRA withdrawals are tax-free, once you're eligible to withdraw from your Roth IRA during your retirement.

3. AVOID PENALTIES BY PAYING ESTIMATED TAX

Everyone makes accounting mistakes sometimes. But you don't need to get stuck paying interest and penalty charges for underpaying your taxes. IRS rules state that individuals must pay 100 percent of the previous year's tax liability or 90 percent of the current year's tax - or an underpayment penalty will be owed.

If you think your tax payments were a bit light, make an estimated payment by January 15th to avoid fourth quarter penalties. If your income windfall happened after August 31st, file Form 2210: Underpayment of Estimated Tax to annualize tax liability and reduce extra charges.

4. KEEP TRACK OF TAX PAPERS

Even for disciplined military servicemembers, keeping track of documents, receipts, and income records can be a nightmare. Keep yourself organized with a tax checklist to remind yourself to gather tax documents throughout the year.

Here's a sample Tax Paperwork Checklist:

-- Save all information that comes via mail in January, such as 1099s, W-2s, and mortgage interest statements.

-- Collect receipts from the fiscal year, and group similar documents together in file folders.

-- Keep track of prices paid for stocks or funds that you have sold.

--Record the details of your income from rental properties and other investments.

Personal finance software programs, like Quicken, can be invaluable to keep your military finances organized throughout the year.

5. HAVE TAX FORMS AT YOUR FINGERTIPS

Necessary tax forms and publications can be downloaded directly from the Internal Revenue Service web site, and the IRS can also refer a private web site listing government locations to pick up state forms.

TurboTax is another option for obtaining and filling out tax forms.

6. ITEMIZE YOUR WAY TO SAVINGS

Although it takes more time, itemizing your expenses could save you thousands of dollars, especially for military servicemembers who are homeowners, or living in a high-tax region.

Miscellaneous expenses are deductible if they equal over two percent of adjusted gross income when they are combined. Deductible expenses include tax-preparation fees, business car expenses, professional dues, or job-hunting expenses.

Sales tax can also be deducted if the amount spent is more than the state and local income taxes paid that year. If receipts are kept all year, the total sales tax amount can be compared to the amount on IRS tables based on income and household size, and you can claim whichever is greater. This is where keeping your expenses organized really pays off.

Medical expenses may also be deductible, if they exceed 7.5 percent of your adjusted gross income.

7. FILE TAXPAYER IDs FOR DEPENDENTS

Be sure to provide accurate Taxpayer Identification Numbers (often Social Security numbers) for your military children and other dependents. This is necessary for personal exemption of $3,500 for every dependent and the $1,00 under 17-child tax credit.

When your child is born, file their Social Security card immediately in order to have the registration by the tax filing deadline. A common mistake occurs when divorced couples each claim the same child as dependents, which brings your tax processing to a dead halt and risks potential penalties.

8. FILE ELECTRONICALLY, COLLECT TAX REFUNDS QUICKLY

Not only will you get your refine 3-6 weeks earlier, but electronic filing is also a military-smart strategy to ensure an accurate tax return. When you file electronically, the IRS checks your tax return for errors. The IRS also acknowledges that they received your electronic tax information, protecting your against interest and late fees that could be charged if your paper-tax returns get lost.



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