Adam Markowitz, EA President of Luminary Tax Advisors and Board Member at the West Orange Chamber of Commerce

Most normal people spend their last few moments of the night on December 31 counting, “3! 2! 1! Happy New Year!!!” But tax professionals? We celebrate the ball dropping in Times Square with, “3! 2! 1! Happy Tax Season!!!”

As our most important countdown towards the April 15 deadline continues – you only have 69 days left to file your tax return! – here are a few things to keep in mind while completing your taxes this year.

Avoid Penalties by Making an Estimated Tax Payment

Owe money on your taxes? You may be subjected to what’s called underpayment of estimated taxes penalties. The IRS dings you for a penalty at a rate of 8% APR if you have underpaid your taxes throughout the year. Due to deadlines changed imposed after Hurricane Idalia, any payments which are made by February 15 will post retroactive to August 27, saving 5.5 months of penalties. Even if you’re not ready to file your tax return in the next nine days, making an estimated tax payment by February 15 could save tens or hundreds of dollars in penalties for Florida-based taxpayers.

Be Mindful of Retirement and HSA Contributions

As the clock ticks towards April 15, IRAs and HSAs take on great importance. It’s the last call for these deductions, and eligible taxpayers would be wise to consider taking advantage of them.

If you have HSA-qualifying medical insurance, you’re eligible to contribute up to $3,850 for individuals or $7,750 for families, and contributions can be made for 2023 until April 15.

The same is true for funding IRAs for those who are eligible. Funding thresholds for IRAs and Roth IRAs cap at $6,500 ($7,500 if you’re 50 years or old).

For those who are self-employed, don’t discount SEP IRAs. SEP IRAs can be funded as late as September 15 (if you’re an S-corp) or October 15 (if you are a sole proprietor) if you go on extension. SEPs are also a way to put a lot more money into your retirement than a regular IRA would allow. You can contribute up to 25% of your salary (if you’re an S-corp) or generally 20% of your bottom line (if you’re a sole proprietor) up to a total of $66,000.

Hurry Up… And Wait!

In case you hadn’t heard, there’s a football game this Sunday of modest importance.

The rules of football are complicated, but for the most part, the core rules never change. Touchdowns are still worth six points, field goals are still worth three, and I’m pretty sure that somewhere in the NFL rulebook, there’s a mandate that Taylor Swift be shown on our televisions every time Travis Kelce comes within 13 yards of the football.

But our rules in tax? They change all the time. And sometimes, they change retroactively. Can you imagine if, after the Super Bowl ended, the rules changed so a touchdown was suddenly worth five points instead of six, and the NFL decided to rescore the game? Maybe we’d have a different Super Bowl champion!

That’s basically what could be happening this year to us in the tax space.

Last Wednesday, the House of Representatives passed a bill which would do a few things to the tax code:

  • Expand the refundability of the Child Tax Credit for low-income taxpayers
  • Expand bonus depreciation from allowing an 80% deduction for new asset purchases to a 100% deduction
  • Provide additional relief for taxpayers who were affected by certain natural disasters dating back to 2021

And yes, I said 2021, and no, you didn’t lose track of time; it’s still 2024.

That disaster provision could be a big one. Remember Hurricane Ian? Hurricane Nicole? Hurricane Idalia? Those storms caused billions of dollars of damage to Floridians, much of which was never refunded by insurance companies. The mass majority of taxpayers weren’t able to get any relief on their taxes for their losses. But should this bill become law, that would all change, opening up the possibility of hundreds, if not thousands of dollars of tax relief to those who suffered damage from these storms.

Will this bill become law? Who knows?!?! The Senate may elect to pass the bill as the House did, they may reject it, amend it, introduce a whole new bill, or they may just never vote on it at all. Where does that leave taxpayers? Playing the waiting game for what the new retroactive rules could look like.

The best practice for most taxpayers is to get your taxes prepared as early as you can, though you may be best served waiting to see how things play out in Washington before actually filing in case anything that changes affects you.

Disclaimer: This article contains a general analysis of federal tax issues. It is not intended for, nor can it be used by, any taxpayer for the purpose of avoiding federal, state, or local taxes or penalties. This information is provided to support the promotion of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.