Recover Missed Tax Deductions

It’s January, and you’re kicking yourself for missing the December 31 tax deadline for key deductions. While it may feel like the window has closed, there’s still good news: many opportunities remain to recoup lost deductions and reduce your taxable income. By taking strategic action now, you can recover missed tax deductions and set yourself up for a smoother tax season next year.

Here’s a step-by-step guide to bounce back and maximize your deductions:

Contribute to a SEP-IRA

If you’re self-employed or own a small business, a Simplified Employee Pension (SEP) IRA can still provide valuable tax savings. Contributions can be made until the filing deadline, including extensions, regardless of when the account was established. This flexibility allows you to recover missed tax deductions by reducing taxable income while building your retirement savings.

Steps to Implement:

Open a SEP-IRA account if you don’t already have one.
Calculate your contribution, which can be up to 25% of your net self-employment earnings (capped annually).
Make your contribution before filing your tax return.

Fund a Traditional IRA

Even if you’re not self-employed, you may still have time to contribute to a Traditional IRA for the prior tax year. Contributions are typically allowed until the tax filing deadline, without extensions. A Traditional IRA contribution offers a potential tax deduction and tax-deferred growth, helping you recover missed tax deductions effectively.

Steps to Implement:

Confirm your eligibility and income limits for deductions.
Make a contribution and ensure it is marked for the prior tax year.
Contact us to determine the best retirement strategy for your financial goals.

Leverage Carryover Deductions

If you didn’t use all your charitable contributions, capital losses, or business deductions in previous years, you might still benefit from them as carryover deductions. These deductions can reduce this year’s taxable income, helping you recover missed tax deductions from prior tax years.

Steps to Implement:

Review last year’s tax return for unused deductions.
Calculate how carryover amounts can offset this year’s income.
Document these deductions to ensure compliance with IRS regulations.

Clean Up Your Bookkeeping

Accurate records are the foundation of tax compliance and can uncover overlooked deductions. Missing receipts or poorly categorized expenses could mean leaving money on the table.

Steps to Implement:

Reconcile bank and credit card accounts.
Gather any missing receipts for deductible expenses.
Ensure all expenses are properly categorized (e.g., home office, business travel).

Claim Tax Credits

Not all tax credits are tied to the December 31 deadline. Education credits, clean energy credits, and others may still be available. Claiming these credits can offset your tax liability directly, which can be even more beneficial than deductions.

Steps to Implement:

Identify eligible credits, such as the Lifetime Learning Credit or Child Tax Credit.
Gather supporting documentation (e.g., tuition payments, energy-efficient home upgrades).
Contact us to ensure all eligible credits are claimed.

Review Business Purchases for Depreciation

If you made late-year business purchases but didn’t place them into service before December 31, you can still deduct them in the following tax year. This helps you capture deductions you might have thought were lost.

Steps to Implement:

Verify purchase dates and determine whether the items qualify for Section 179 or bonus depreciation.
Place the items into service as soon as possible.
Calculate deductions based on their in-service date.

Adjust Quarterly Estimated Taxes

Missing year-end deductions may impact your tax liability for the current year. Adjusting your estimated taxes now can help you avoid penalties.

Steps to Implement:

Recalculate estimated taxes based on missed deductions.
Adjust payments for upcoming quarters.
Set calendar reminders to stay on track.

Amend Prior-Year Returns

If you discover an error or missed deduction on a prior-year return, you may be able to file an amended return to recover those savings. Amending prior-year returns can help you recover missed tax deductions while ensuring your taxes are accurate.

Steps to Implement:

Review past returns for missed deductions or credits.
File Form 1040-X to amend the return.
Include all supporting documentation with your submission.

Set Up a Tax Planning Calendar

The best way to avoid missed deductions in the future is to stay organized and proactive throughout the year.

Steps to Implement:

Schedule mid-year tax check-ins with MeredithCPAs.
Automate reminders for key deadlines, such as estimated tax payments and retirement contributions.
Keep an ongoing list of potential deductions as they arise.