Now that the current year tax season is coming to an end, here are a few money saving tips you can implement now that may put more money in your wallet later …
Quick Tip #1► Take your losses. Take time to review and balance your portfolio. If you have losses in your portfolio, consider selling them before year-end. Taking a loss offsets capital gains made in your other portfolio positions.
You can write off or claim your net capital losses up to $3,000 or $1,500 if you’re married and filing separately. According to IRS.gov, if your net capital loss is more than this limit, you can carry the loss forward to later years. All you have to do is use the Capital Loss Carryover Worksheet (please see page 9 of this PDF) available at IRS.gov.
Quick Tip #2► Increase Your Paycheck. If you received a large refund this past tax year, it means your federal income tax withholdings may be too high. Consider adjusting your withholdings to a level where you get to keep more of your money with each paycheck next year. To calculate your withholdings visit: http://www.irs.gov/Individuals/IRS-Withholding-Calculator
Quick Tip #3► Give and Itemize. Do you have a favorite charity? Do you have a place of worship that you attend? Do you itemize? Consider giving tax deductible donations to these venues before December 31st. When you receive your year-end tax receipts and file your taxes next year, itemize these donations.
Not sure if you are allowed to itemize? You can itemize if the total amount of these deductions surpasses the standard deduction of your filing status.
For 2014, the standard deductions are as follows:
2014 Standard Deductions
Married Couples Filing Separately $6,200
Heads of Households $9,100
Married Couples Filing Jointly $12,400
So, if your charitable contributions coupled with your other deductions like home mortgage interest or real estate taxes (based on the value of your property only) exceed the amounts listed above, consider itemizing for the next tax year.
Quick Tip #4► Max It Out. Do you participate in a company 401(k), 403(b) or a tax-deferred IRA? Contribute to these plans as much as your budget can afford. The 401(k) plan allows you to reduce your taxable income since contributions are deducted from your pay before taxes are withheld. Simply put, it reduces the amount of tax paid out of each of your paychecks.
For 2014, the pre-tax contribution limits for 401(k), 403(b), and most 457 plans are $17,500 for individuals that are 49 and under with an additional catch-up contribution of $5,500 for those 50 and older. For Roth and Traditional IRAs, the contribution limit is up to $5,500 for individuals that are 49 and under with an additional catch-up contribution of $1,000 for those that are 50 and older.
Quick Tip #5► Pay now, not later. Happy New Year! Pay your January mortgage on or before December 31st. By doing so you take an additional deduction for interest paid, thus giving you one more month of interest to deduct.
Quick Tip #6► Flex it!
Do you participate in a flexible spending plan from your employer? If so, you need to use it before the end of this year. Aim to make that doctor or dental appointment now or purchase needed medical supplies that are covered under your plan. Try not to lose your tax-free earnings.
Quick Tip #7► Be a gift giver.
In general, to reduce your future estate taxes, consider gifting your children, grandchildren, nieces or nephews a tax-free gift currently up to $14,000 per person. If you are married, both you and your spouse can separately give gifts valued at up to $14,000 or $28,000 to the same person without making a taxable gift.
Quick Tip #8► Earn extra credit.
Would you like to possibly see your tax bill reduced significantly? Then take advantage of tax credits. There are quite a few tax credits available. In some cases, tax credits are more valuable than tax deductions. Why? Tax deductions reduce your gross income, while tax credits are deducted from the final amount of tax you owe. For example, if you owe $6,000, claim a tax credit of $2,000 and you end up paying $4,000 … a significant reduction.
Here’s a list of tax credits you should keep your eye on for the 2014 tax year … see if you qualify:
Earned Income Tax Credit (EITC)
Child and Dependent Care Credit
Small Business Health Care Credit
The American Opportunity Credit — Education Credit
The Lifetime Learning Credit — Education Credit
Tax Credits for American Citizens Living, Working Abroad