Now that the new year has begun, April 15 will be here before you know it. Have you done all you can to minimize your tax payments and maximize prudent financial planning? If you’re not sure, there’s still time to make some smart choices before you file this year’s tax return. The Virginia Society of Certified Public Accountants (VSCPA) provides these tips.
1. Reconsider the Standard Deduction
Many people automatically take the standard deduction on their return because it simplifies the task and they’re uncertain about the deductions for which they may qualify. For the 2014 tax year, the standard deduction is $6,200 for single people and $12,400 for married couples filing jointly. But did you know that you may actually be eligible for a much larger deduction if you itemize instead of taking the standard deduction? In fact, the U.S. Government Accountability Office (GAO) found that in 2002, as many as 2.2 million taxpayers likely overpaid their taxes by about $1 billion because they failed to itemize deductions. Common deductions include home mortgage interest, real estate taxes, state and local income or sales taxes, charitable donations, losses due to casualties or thefts and unreimbursed medical or employee business expenses. Depending on which ones apply to you, they might add up to more than the standard deduction, so it’s worth considering itemizing. If you’re not certain about your best choice, be sure to ask your local CPA.
2. Get Organized
Holding on to receipts and keeping your documents neatly filed may seem like a hassle, but well-organized records can really pay off at tax time. For one thing, they can help you establish whether you qualify for some of those common deductions. In addition, a full view of your financial picture can help you and your CPA identify new opportunities to lower your tax bite or make other smart money management choices that can get you on track to meet your short- and long-term financial goals.
3. Pump Up Your Retirement Plan
If you’re a procrastinator, this might be the tax-saving strategy for you. If you qualify to contribute to a traditional individual retirement account (IRA), you can make that contribution right up until April 15 and still deduct it on the previous year’s return if you choose. For 2014 and 2015, the maximum total IRA contribution for traditional and Roth combined is $5,500 ($6,500 if you’re 50 or older). Remember that interest and dividends you earn on money in a traditional IRA grow tax free until you withdraw them, which is another great reason to enhance your nest egg. A couple of important notes: Your deductions for a traditional IRA may be affected by whether you or your spouse is covered by an employer’s retirement plan. In addition, your income level may have an impact on the amount of your deduction. Contact your CPA for more information.
4. Review Your Withholding
Everyone loves a tax refund, but if you got a fat check from the U.S. Internal Revenue Service (IRS) last year, that may mean that too much is being withheld from your paycheck every week. Start the New Year on the right track by reviewing how much you’re having withheld and lowering the amount if necessary. Since that will put more money in your pocket, consider dropping it directly into a retirement account or an emergency fund.
Your Local CPA Can Help
This is a great time to reach out to your local CPA to discuss your tax situation and any other financial concerns. Make an appointment with him or her today to get the advice you need to make smart financial decisions in the new year.