Lower Your Effective Tax Rate
Deductions lower your total taxable income. The term used after deductions are entered is your “effective tax rate.” Knowing your effective tax rate can help you decide whether putting money into your pre-tax 401(k) or IRA might result in a lower taxable income.
The 2014 contribution limits are:
401(k): $17,500 for those under 50; $24,000 for those 50 and over.
IRA: $5,500 for those under 50, and $6,500 for those 50 and over.
If you believe that your effective rate is likely to be lower now than when you retire you may want to have your money taxed now by putting it into a Roth saving plan. This is a discussion you will want to have with a professional financial advisor.
You may also still contribute to a qualified Education Saving Account (ESA) before April 15 so check with your tax professional to see having your contribution count for the 2014 year is a good idea.
Avoid an Audit
If you have lost or have missing paperwork needed to file your return, and you try to guess what those amounts are, guessing could result in an audit. So be sure you have your W-2, Form 1099-R, or any other form necessary for your tax situation before you file. Banks, mortgage companies and student loan lenders provide electronic versions of these documents that you can print or download straight into your tax preparation software.
If you’re self-employed or for any reason make quarterly estimated payments to the IRS throughout the year, don’t forget that even though you might be sending money to the IRS, or looking forward to a refund this time of year, you still have to deal with your quarterly estimated payment.
Finally, as a reminder, charities often get a slew of donations at the end of year. It’s too late now to “give to get” for 2014, but please remember the good work of charities goes on all year long. They need your continued, thoughtful support. Have you ever considered a donor-advised fund? It’s a great way to receive tax benefits, plus you get to have a say about how the charities use the money.