6 Tax Tricks the IRS Doesn’t Tell You

Although April 18 is quickly approaching, there’s still time to file your taxes before this year’s delayed deadline. Unfortunately, that means there’s also time to make mistakes — but there’s still time to avoid them, too.

One of the benefits of filing early is that you take pressure off yourself and leave time to double- and triple-check everything before you send your returns to the IRS. Those who wait tend to rush, and those who rush make unforced errors.

With that in mind, GOBankingRates spoke with tax professionals from a variety of backgrounds who offered tips, tricks and strategies for lowering your bill and keeping as much of your money as possible, even if you let the clock tick all the way down to Tax Day.

The following tips will help you avoid expensive errors, maximize your deductions and lower your taxable income, even if you earn some or all of that income from unconventional sources. Here’s what you need to know to get it right as the deadline draws near.

This one might seem obvious, but you’d be surprised by how many people get into trouble because their accountants forget to include their John Hancock. Your returns are ultimately your responsibility even if you get professional help, so always check that your preparer signed on the dotted line.

“You can save a lot of time by seeking a tax expert’s help when preparing your tax returns,” said Miles Brooks, director of tax strategy at CoinLedger. “However, most people do not know that the preparer should have a PTIN-Preparer Tax Identification Number, which they should include on the return and sign. Failure to sign can encourage scrutiny in the form of an audit and may result in you incurring a penalty.”

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Savvy investors magnify their gains through DRIP, or dividend reinvestment plan. Instead of cashing out their dividend payments, investors on a DRIP put them right back in to add to their holdings, which then collect even greater dividends.

But the savviest of all remember them at tax time.

“Subtracting your reinvested dividends can save you thousands of dollars,” Brooks said. “While it is not a tax deduction, most taxpayers do not include it. If you have stock dividends and mutual funds and automatically reinvest the extra share, each reinvestment will increase your tax basis, reducing the taxable capital gain. So, not including the reinvested dividends means you will overpay your taxes.”

Today’s outsized standard deduction — $12,950 for single filers, $25,900 for joint — makes itemizing much less attractive. But an intelligent strategy could lower your taxable income enough to make it worth the extra effort.

“I recommend ‘bunching’ deductions to exceed the thresholds, if possible,” said Akpan Ukeme, CFP, a tax consultant and founder of Finance4Zoomers. “Bunching is when you time expenses by pushing deductible expenses into the same calendar year.”

Ukeme’s suggestions include:

• Pre-paying mortgage payments or property taxes
• Doubling charitable contributions
• Pre-paying large medical bills

The old adage with investing is that you don’t lose until you sell. While no one likes selling at a loss, doing so at the end of the year can reduce your taxable income — and therefore your tax bill. It’s called tax-loss harvesting.

“This involves selling investments that have lost value to offset capital gains from other investments, thereby reducing their overall tax liability in a year they anticipate more capital gains,” said Richard Lavina, CPA and CEO of Taxfyle. “For example, an individual may sell a stock that has declined in value, allowing them to offset capital gains from other stocks they’ve traded. This can be a smart move, as it reduces their tax bill and helps them rebalance their portfolio.”

Many newly self-employed people don’t know they can take the full standard deduction and still write many of their biggest work expenses individually — including the dreaded self-employment tax.

But the write-offs don’t stop there. The IRS lets contractors and business owners deduct expenses related to their vehicles, continuing education, rent, advertising, work-related computers, Wi-Fi and more.

“Ensure you’re taking full advantage of deductions available to small businesses,” said Dana Ronald, CEO of Tax Crisis Institute. “Like the home office deduction, self-employed health insurance deduction and retirement savings contributions.”

Most people know you can deduct charitable contributions, but donating appreciating assets — those that have increased in value since you acquired them, such as stocks or CDs — provides extra advantages.

“If you have investments that have appreciated in value, donating them to a qualified charity can provide a tax benefit,” said Prajakta Pawar, a financial analyst at Starter Templates. “You can claim a deduction for the full market value of the asset, and you won’t have to pay capital gains taxes on the appreciation.”

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