Best Ways to Save on Your 2014 Tax Return
By Barbara Weltman
Death and taxes, as the saying goes, are certain, but how much you pay in taxes is up to you to some extent. The burden is on you to know what write-offs and other tax breaks are available to you and to take appropriate action. Here are five strategies you can use to save on income taxes.
1. Use last year’s return as a reminder
Review your tax return for 2013, looking closely at the deductions and tax credits you claimed. Then consider your activities for 2014 to see that you don’t overlook anything when completing your 2014 return. For example, if you usually deduct charitable contributions, review the list of organizations you gave to in the past; this may prompt you to remember a donation made in 2014 that would otherwise have been forgotten. However, be sure you have the required substantiation to prove your deduction.
2. Check for new eligibility thresholds for tax breaks
Some tax breaks are limited to those with income below set limits. Just because you didn’t qualify for a particular tax break last year because your income exceeded a threshold amount doesn’t mean you are barred this year as well. Many eligibility thresholds have increased for 2014, potentially making you eligible for the break. For example, if you participate in your employer’s 401(k) plan, you may also be able to make a tax-deductible IRA contribution to reduce your tax bill as long as your modified adjusted gross income (MAGI) is below a threshold (based on your filing status). Those threshold amounts are higher in 2014 than they were in 2013.
Other breaks with higher eligibility limits in 2014:
- Lifetime learning credit
- Retirement savers credit
- Roth IRA contribution
3. Check for new laws and new limits for exclusions, deductions, and credits
If you bought health insurance coverage from a government marketplace (also called an exchange), you may be eligible for the new premium tax credit to help defray the cost of coverage.
Also, some write-offs are larger in 2014 than in 2013. Examples:
- Foreign earned income exclusion
- Health savings account contributions
- Long-term care insurance premiums (the deductible portion)
- Personal exemptions
- Standard deduction amounts
4. Decide whether to itemize or take the standard deduction
Don’t let laziness prevent you from claiming your maximum write-offs. Compare your itemized deductions with the standard deduction for your filing status; then deduct the higher amount. Itemized deductions include payments for:
- Medical expenses not covered by insurance or other health plans
- Certain state and local taxes
- Mortgage interest (within limits) and net investment interest
- Charitable contributions
- Casualty and theft losses
- Miscellaneous itemized expenses, such as employee business expenses and costs related to tax return preparation
5. File a return even if you aren’t required to do so
You may be eligible for a refundable tax credit, which means you receive money back even though it is more than the taxes owed. Three refundable credits for 2014 are the earned income credit, the premium tax credit, and, for some taxpayers, the child tax credit (and the American Opportunity credit is 40% refundable).
If you overpaid your income taxes because you had too much withheld from your paycheck or your estimated tax payments were larger than necessary, be sure to file for a tax refund. The IRS does not send you a refund automatically.
Barbara Weltman is an attorney, prolific author, and a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® at www.BarbaraWeltman.com and has hosted a weekly radio show called "Build Your Business."