Wednesday, January 14, 2015 |
Joe Alfonso, GoLocalPDX Contributor
April 15 is rapidly approaching and now is a good time to start getting ready.
The following are some suggested steps to take now while there is still time to ensure a less stressful tax season and also save money on taxes, whether you prepare your own returns or have them done for you.
1. Make an IRA Contribution
You have until April 15 to complete a contribution to a traditional or Roth IRA for 2014. The maximum 2014 contribution amount per person is $5,500 ($6,500 for those over age 50). If eligible to contribute to both a traditional and Roth IRA, your combined contribution cannot exceed the annual limit.
You can contribute earned income up to the maximum allowable amounts subject to certain modified AGI limits. For traditonal IRAs, the 2014 AGI limit to make a deductible contribution if you are covered by a workplace retirement plan is $116,000 for a married couple, $70,000 for a single person. The 2014 AGI limit for Roth contributions is $191,000 for married filers, $129,000 for singles and married folks filing separately.
Note that non-working spouses can also make traditional and Roth IRA contributions as long as total earned income at least equals the total household amount contributed.
2. Gather Your Charitable Receipts
Many of us make charitable contributions of cash or goods. The IRS allows a deduction for these contributions typically up to 50% of AGI. Proper documentation is required to substantiate these deductions so it is wise to gather these now.
Individuals making cash contributions of $250 to any single organization must obtain a written acknowledgment from the organization in order to claim a deduction. This letter must be received before the filing date of the tax return. Single contributions of less than $250 can be substantiated by cancelled check.
If you make total non-cash contributions over $500 you must complete a detailed IRS form that is attached to the tax return listing each item and its fair market value.
3. Organize Tax Documents
You will soon be receiving various tax documents from your employer, the federal government and the various financial institutions you do business with. Forms such as the W-2, reporting your income and withholdings from employment, the 1099-B, reporting stock and mutual fund transactions, and the 1099-DIVand 1099-INC, reporting bank paid dividends and interest, are issued by the end of January. Key data from these forms must be correctly reported on your tax return as the IRS also receives copies and will send you a notice if these are not reflected on your return. As you receive these forms, place them in a folder so that they will be handy when needed. Scanning them to a secure digital folder is also a good idea in case the paper originals are ever lost. Follow up with issuers immediately if you have not received an expected tax form by early February.
4. Spend Your Flexible Spending Account (FSA) Money
Many employers offer their employees a way to set aside a portion of their salary on a pre-tax basis to pay for out of pocket medical expenses. Given that the IRS does not allow a deduction for medical expenses that do not exceed 10% of adjusted gross income, a Flexible Spending Account (FSA) is usually the only way to save taxes on these expenses. FSAs are particularly valuable for taxpayers who are impacted by the AMT tax as a way to lower their taxes via pre-tax savings thereby offsetting some of the deductions lost due to the AMT.
Tax season is inherently a stressful time. Getting an early jump on your preparation will allow you not only to lower your stress level but also avoid letting key tax saving opportunities fall through the cracks.
A version of this article originally appeared in the Business Section of GoLocalPDX