by Christian Hudspeth, CFP®
It’s tax season again, and while December 31 of last year has come and gone, it’s not too late to make smart moves to reduce your tax bill and buy yourself some time.
As a former tax preparer who has spent Tax Day (April 15th) with clients filing taxes at the last hour, I know the importance of understanding IRS rules to make wise, legal choices while steering clear of tax penalties or common mistakes.
Today we’ll talk about how to confidently file your tax return even as Tax Day draws near by following these simple tenants:
- Income is mandatory.
- Tax deductions are bonus.
- Filing on time beats paying on time.
- File an extension with payment if all else fails
Income reporting is required. Tax deductions are bonus.
I remember witnessing clients delay filing because they didn’t want to miss out on finding every last tax deduction first. But when it comes to the IRS, they want to know all the income you made in the tax year much more than any tax deductions you can find.
And missing the filing deadline without an extension can be a costly mistake (more on that soon).
Start by filing your return with income you made by searching your mail and email for the following forms:
If you earned money:
- W-2 (wage income)
- 1099-MISC (contractor, self-employment, or side-gig income)
- Your own records of income/expenses from your business
If you generated income through banks and/or investment brokerage firms:
- 1099-R (IRA, retirement plan, annuity or pension withdrawals)
- 1099-Int (interest income)
- 1099-Div (dividend income)
- 1099-B (stock, bond or ETF sale proceeds)
If you lease rental property, own royalties, or own a partnership or trust:
- 1099-MISC (rental or royalty income)
- Rental income/expense records from your rental property
- 1099-K (partnerships and trusts), which sometimes come out after tax season
Now go for the tax deductions.
Once you’ve recorded your income (and if you still have time before the tax filing deadline) in your tax filing software, it’s time to dig deep to claim tax deductions you’re entitled to from expenses you had last year (We wrote about more than 30 commonly missed tax deductions in Using Itemized Deductions to Save Money on Taxes).
If you own a business or rental property, I strongly encourage you to work with a professional tax preparer as they can often find more for you in tax savings than what they charge in fees (see Should I Do My Own Taxes or Hire an Expert?).
Next level idea: business owners with large cash flow or savings can save thousands in taxes by working with a financial advisor and choosing the right tax-deferred retirement plan.
For example, we recently worked with a self-employed business owner who landed a multi-million-dollar contract and had more money than she needed to live on for the year. Despite it being April 2025 (and thanks to new Secure Act 2.0 rules) we recommended she open a Solo 401k where she could defer $70,000 of her otherwise taxable cash flow from tax year 2024 (and for the next several years).
At a 24% marginal tax rate, that one move saved her $16,800 in taxes now and potentially for every year she defers. Her invested dollars can be working for her in managed investments and grow tax-deferred for decades.
Even better, in future years when she’s in low tax brackets, she can convert those pre-tax dollars little-by-little over several years into a Roth IRA and pay an average tax rate of just 10 or 12% on those conversions.
Many of our clients are projected to save hundreds of thousands of dollars in taxes over their lifetime using this future-looking strategy.
(Further reading: Is Now the Best Time for a Roth IRA Conversion?)
Filing on time is more important than paying on time.
I’ve seen too many taxpayers use the excuse “I’m not in a hurry to file since I know I’ll owe the IRS.” They often reasoned they would file and pay their tax bill when they had the money and ended up filing late. That’s an expensive mistake.
Consider this: The IRS’ Failure to Pay (FTP) penalty is 0.5% per month of the tax owed, but the IRS’ Failure to File (FTF) penalty is 5% per month. That’s a whopping ten times more expensive for filing late. Combined, the penalties can keep growing up to a maximum of 25% of the tax bill.
For example, let’s say a taxpayer didn’t withhold enough from their paycheck over the year and owed $20,000 in taxes when they filed. If they filed on time, they’d owe $100 per month in penalties for each month they couldn’t pay back the balance. But if they missed the filing deadline (April 15th), they would be charged a punishing $1,000 per month in FTF fees until they filed their return (up to a maximum of 25%, or $5,000 in this example).
And that’s before IRS interest charges are added in, which at the time of this writing is charged at an annual rate 7% of the taxes owed.
Even if you know you’ll owe, don’t wait to file. Instead, you can file your tax return electronically now and have a payment automatically drafted on or shortly before tax day.
If cash is tight, you can file and set up a payment plan (Read more about IRS payment plans) to pay back the loan over time.
And if you need more time…
If the only thing holding you back from finishing your return now is tax deductions, you can always file now and file an Amendment later to get some of your tax dollars back when you file the amendment. Almost any tax preparer or tax software out there can help you do this, or you can get help from the IRS’ page on filing an amended return.
If you are waiting on forms (k-1 forms are notoriously later than tax filing season) or finishing your business’ profit and loss statements, you can file an extension (see IRS’ extension page) and make an estimated tax payment now based on what you owed for taxes last year minus what you’ve already paid in estimated payments for the tax year.
Filing an extension gives you until October 15 to finish filing your tax return.
The Takeaway
Income is mandatory while deductions are often bonus. File on time, and if you can’t, file an extension with an upfront payment if you need more time.
Whether you do your taxes yourself or with a tax professional, it’s a good idea to work with a trusted financial advisor and planning team. For example, while a CPA may look at ways to reduce your taxes in a given year, our financial planning team works with clients to:
- Spot missed potential tax deductions,
- Map out your taxable income (and tax brackets) years into the future,
- Execute well-timed Roth IRA conversions,
- Plan for tax-optimized withdrawals,
- Identify tax-smart donation strategies that don’t always require itemizing,
- All to potentially save you thousands of dollars in taxes over your lifetime.
Whoever you decide to partner with to get your tax work done this year, we wish you the best this tax season.
*The information presented here is not specific to any individual’s personal circumstances. FMP Wealth Advisers is not providing investment, tax, legal, or retirement advice or recommendations in this article.
**To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
***These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
