2014 is done, so 2014 tax planning is done too, right? Guess again. Although it’s true that most tax planning strategies are limited after December 31st, there is still a lot you can do to make the tax-filing season cheaper and easier.
Maximize Your Retirement Contributions
If you haven’t already funded your retirement account for 2014, you still have time. Contributions to a Traditional IRA (whether deductible or not) and to a Roth IRA are available until April 15th, 2015. If you are self employed and have a Keogh or SEP-IRA, you have until October 15th, 2015, if you submit an extension of time to file your tax return. Not only will making a deductible contribution lower your tax bill, but your investment will compound tax-deferred. There are specific requirements and limits for each type of account so check with a qualified tax advisor on your specific situation.
Estimated Tax Payments
If you don’t pay enough to the IRS during the year, you may be looking at a hefty tax bill come April. It is possible that you might even owe penalties and interest on top of the tax. You could avoid any 2014 fourth quarter penalties on underpayment of tax if you submit a payment by January 15th 2015. Try not to over pay the tax however, because the IRS does not pay you any interest on the borrowed money called your refund. It is your money so plan accordingly.
Organization of Your Records
Having your records organized may not save tax dollars, but will make your tax season less stressful. Start by keeping your prior year returns and tax documents in the same place. Collect all of your receipts and documents that may have piled up during the year (hopefully you already have a folder or file called “Taxes” to get you started). When your W2s, 1099s or other tax documents start arriving in the mail, put them all in the same folder and group them together in like categories. When beginning to prepare your return, work off a checklist or worksheet so you don’t overlook anything.
Take Every Deduction You Are Entitled To
Often times, taxpayers overlook deductions or decide not to take certain deductions because they feel too they are being too aggressive. In order to minimize the amount of tax liability, take every deduction you are entitled to. If your qualified itemized deductions exceed your standard deduction, file with the higher amount. Some well known items that you can itemize are home mortgage interest, real estate taxes and charitable deductions. Other lesser known itemized deductions that you may be entitled to include job hunting expenses, unreimbursed employee expenses, and out of pocket medical expenses. If you are self employed, make sure you write off all of your expenses and be prepared to back these with receipts. One of the items self-employed individuals may be eligible for is the Office-In-Home Deduction. If you conduct business exclusively out of your home office, you may be eligible.
File & Pay On-Time
If you can’t finish your return on time, make sure you file Form 4868 by April 15th, 2015. You will get automatic six-month extension of the filing deadline until October 15th, 2015. On the form, you need to make a reasonable estimate of your tax liability for 2014 and pay any balance due with your request. Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS. If you file and pay late, the IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.
Seek Help, If You Need It
Low cost, affordable options to prepare and file your returns exist. If you are comfortable doing your own return, go for it. If you become uncomfortable or get in a jam, call us at 800-560-4637 for added confidence and peace of mind. We are here to help.