Save Money on This Year's Taxes

      April 15th is quickly approaching and if you haven't filed your taxes yet you may be waiting because you are looking for ways to lower your tax bill. Or perhaps you know you are going to owe but cannot pay in time. Tax Expert Troy Reichlein shared some ways you can lower your tax bill at the last moment and what to do if you cannot pay on time.

      Retirement Contributions:You can contribute money into an IRA account up until April 15th and receive a deduction on your tax return for it. This deduction reduces your taxable income for federal and state purposes, so it can result in a good size reduction in taxes. You can contribute up to $5,500 for you and your spouse, and if you are over the age of 50 you can contribute up to $6,500.

      If you are self-employed, or have self-employment income, you may be able to contribute up to 25% of your self-employment income into a SEP IRA account, and, you get an added bonus in that you have until the due date of your return, including extensions, to make the contribution. This means you could have up to October 15th. You need to make your contribution prior to filing your tax returns, so if this was something you want to do, but are short on cash flow, file an extension, make the contribution when you can, and then file your returns.

      Section 529 College Savings Plan:If you have children or grandchildren and have not already started a College Savings Plan, consider doing one. Single filers can contribute up to $2,225 and married couples can contribute up to $4,455 up to April 15th and receive a deduction on their Oregon return for the contribution. If you contribute more than the allowable amounts you can carry forward the portion that exceeds the allowable deduction.

      Health Savings Account:A health savings account lets you contribute money to a savings account which you can then use later on to pay for medical costs not covered by insurance. The money in the account grows tax free and so long as you use the funds to pay for unreimbursed medical costs, there are no taxes on it. For a single member plan you can contribute up to $3,250 and for a family plan you can contribute up to $6,450. You have to have a high deductible health insurance plan in order to setup a Health Savings Account, and if you do then these deductions can reduce both your federal and state taxable income. You have until April 15th to fund this account.

      If you do not have enough time to file your taxes by April 15th you will need to file an extension, which is done on IRS Form 4868. Filing an extension automatically extends your due date by six months, to October 15th, and once you file the IRS extension you are automatically covered for Oregon as well.

      If you don't file your taxes by April 15th, and you don't file an extension, then the IRS can charge you some significant penalties. If you owe nothing on your return, or get a refund, there is no penalty, but for those who owe, the IRS can impose a penalty at a rate of 5% of the amount due with your return for each month that you are late, up to 25%. So for example, if you owe $2,500 and are three months late, the IRS can charge you a penalty of $125 per month, for a total of $375. And each month means any part of a month. So if you are late 2 months and 1 day, that counts as three months.

      If you are more than 60 days late, the IRS will charge you a minimum penalty of $135 or 100% of the tax due, whichever is less. Filing an extension removes any chance of those penalties for not filing.

      It is important to note that while an Extension allows you additional time to file your return, and removes any failure to file penalties, it does not give you additional time to pay your taxes. So if you owe, and don't pay by April 15th, you will accrue penalties and interest on the unpaid balance. These penalties are not nearly as significant as filing late without an extension, but they can still add up to some serious amounts.

      If you file your extension but don't pay your tax bill, the IRS can penalize you up to .5% of your tax liability per month that you are late, up to a maximum of 25%. In addition to this, you will also accrue interest on the late balance that you have. So, if you are looking at a tax bill that you cannot afford to pay in time by April 15th, your best bet is to file an extension and pay as much of that tax bill as possible in order to reduce the penalties and interest you will incur.

      For Oregon residents, the penalties are steeper up front. The Oregon Department of Revenue charges a 5% late payment penalty on any amount not paid by April 15th, with few exceptions. So if you are looking at a tax bill owing for the IRS and Oregon, you are typically better off paying Oregon first, and then paying the IRS as quickly as possible.

      A common question asked is if taxes can be paid with a credit card. In the past this was never the case but the IRS has linked with 6 credit card vendors that you can pay your taxes with. The catch is that you have to pay the credit card fee, but if you are looking at not being able to pay your taxes for several months, it may be worth it. The credit card fees range from 1.85% to 2.35%, which equates to about 4 to 5 months of penalty for not paying by April 15th. The added bonus is that if you pay by credit card, you don't have to fret about getting those unpleasant letters from the IRS kindly reminding you to pay your tax bill.

      The IRS has also started accepting debit card payments, using those same 6 credit card vendors, and debit card payments are charged a flat fee of $2.79 to $3.95 per transaction.

      The Oregon Department of Revenue also allows you to pay your taxes using a credit card, with a similar program as the IRS. They charge 2.25% of the transaction as a fee (minimum fee of $3.75), or you can pay with a debit card for a flat fee of $3.75. Again, the cost of the credit card fee is less than half the cost of the penalty charged by the Oregon Department of Revenue, so if this is something you are facing, you may be best paying by credit card and at least you can get some airline miles out of the deal.

      A link to the IRS and Oregon websites for paying by credit cards is:

      Finally, for those who simply do not have access to funds to pay your tax bill, you can setup an installment agreement with the IRS. An installment agreement allows you to pay your tax debt over a period of time, up to 72 months. The IRS charges a flat fee for installment agreements, and the fee depends on your income level and type of plan you are requesting, but generally the fees range from $43 to $120. You can request an installment agreement with the IRS by filling out Form 9465 Installment Agreement Request The Oregon Department of Revenue has a similar program as well, although it is not as streamlined as the IRS, and is not automatic. If you are facing a position of having a tax bill with the Oregon Department of Revenue and cannot pay it by the due date or shortly thereafter, your best bet is to call them as soon as possible to work an arrangement out.