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Tax-Saving Tips for 2014

1.)  It’s Not Too Late For 2013 IRA Contributions  Even though it’s already 2014, it’s not too late to add money to your 2013 IRA, Roth IRA, or SEP accounts.  The deadline for IRA and Roth IRA contributions for 2013 is April 15, 2014.  If you get an extension, then you have until your actual filing date to contribute to your SEP for 2013.

IRA and SEP contributions have a double benefit.  They are 100% deductible from your income for 2013 plus they grow tax-deferred until you use the money.   Roth IRA contributions also have their benefits.  While they aren’t tax-deductible, you will be paying tax on the contribution at your current rate, whereas when you take money from a Roth IRA it is tax free.  In summary, you have already paid the tax on the principle and the earnings or gains are 100% tax free.

For 2013, the maximum IRA and Roth IRA contribution, for those who meet the income requirements, is $5,500 for those under 50 and $6,500 for those 50 and older.

2.) Don’t Overlook a Home Office Deduction

home-officeThere are two options for taking a home office deduction. The first option, beginning in tax year 2013 (returns filed in 2014), taxpayers may use the simplified option for figuring the deduction for business use of their home.   If there’s a space in your home that you use exclusively for business, you may be eligible.  The deduction using this simplified option is limited to $1,500.  This option eliminates complexity.  You just multiply the square footage of the home office by $5 to get the deduction amount up to the $1,500 limit.  The second option is to fill out form 8829 which requires more recordkeeping and a complex set of rules.  The advantage to this option is that it may result in a larger home office deduction.

3.) Don’t Overlook the Homeowner Tax Breaks

Here is a list of tax breaks for homeowners:

  • Mortgage interest
  • Mortgage insurance
  • Local and state property taxes
  • Qualified renovations such as those covered by the Residential Energy Efficient Property Credit
  • Selling costs, such as title insurance, advertising and real estate commissions, are all deductible
  • Moving expenses may be partially deductible if you moved because of a job.

4.) Maximize Your Employer’s Retirement Plan Contribution

Many employers will match their employees’ contributions to their retirement plan (a 401(k) for example) up to a certain percentage.  Make sure that you’re contributing at least enough to maximize this tax-deferred contribution to your retirement funds.

5.)  The Tax Benefit of Refinancing

refinancingThe main benefit of refinancing at today’s low interest rates is of course the lower rate and lower payments, but there’s a tax benefit as well.   Your monthly mortgage payment is always a combination of interest and principal whose proportion changes over the lifetime of the mortgage.  At the beginning of the mortgage, the payments are mostly interest, and at the end of the 15 or 30 years, the payments are almost all principal.  When you refinance, the mortgage clock starts again, meaning that a higher proportion of the payment will be interest.   This interest is tax deductible.   Consequently, after refinancing, your tax deduction might actually increase or stay the same even though your payments will decrease.

6.) Open Your Mail From the IRS Right Away (But NOT email)

mailWe’ve heard of a number of cases where people missed important deadlines from the IRS either because they panicked when they got a letter from the IRS and ignored it or because they were out of town for an extended period.   Neither is a good excuse.

If you get a letter, take a deep breath and open the envelope.  It’s probably not so bad.  If you don’t understand it, call the IRS.   They’re usually very good about explaining the issue.  If you still have questions or want additional help, fax or email the letter to your CPA.  Ignoring notices from the IRS will likely cost more money and more hassle.

If you’re going to be out of town for an extended period, then either forward your mail or have someone you trust pick up your mail periodically and go through it to pull out important and time-sensitive mail, such as a letter from the IRS.

On the other hand, do not open unexpected emails from anyone claiming to be the IRS.  The IRS never contacts people initially via email, and there have been many IRS email scams.

7.) Use a Pro to Prepare Your Taxes

Even though many people think that they are saving money by doing their taxes themselves, it’s usually a case of being penny-wise and pound-foolish.   For most people, the cost of preparing their taxes with a professional is peanuts compared to the money that’s at stake with the IRS.  If you like doing your own taxes, go ahead and figure it out yourself, but then give it to a professional to make sure you haven’t missed something that could save you much more than the tax preparation fee.

 

AGT Tax and Insurance Services provides tax preparation services for seniors at a steep discount.  Our regular rate is just $75 for those aged 55 and older.  This includes a federal and state 1040s and schedules A & B.

Call us for details – 847-933-9222

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