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TAX STRATEGIES
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Some strategies can help you lower your taxes, sometimes by thousands of dollars. Some help you save time and money when preparing your tax return. Other strategies help you avoid costly penalties and interest on both federal and state taxes. All in all, these 7 steps will lower your blood pressure while keeping more money in your pocket:


1. Contribute to retirement accounts
If you haven’t already funded your retirement account for 2014, do so by April 15, 2015. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA.


Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal. If you put away $5,000 a year for 20 years in an investment with an average annual 8 percent return, your $100,000 in contributions will grow to $247,000. The same investment in a taxable account would grow to only about $194,000 if you’re in the 25 percent federal tax bracket (and even less if you live in a state with a state income tax to bite into your return).


To qualify for the full annual IRA deduction in 2014, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $59,000 or less for singles, or $95,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $178,000.


For 2014, the maximum IRA contribution you can make is $5,5000 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2014 is $50,000.


Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2014 tax bill—Roth contributions are not deductible—it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,5000 if you are age 50 or older by the end of 2014) to a Roth IRA, you must earn $127,000 or less a year if you are single or $188,000 if you’re married and file a joint return.


2. Organize your records

Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.


If you really want to make tax season go smoothly, use a personal finance software program like Quicken throughout the year so you have easy access to all the information you need.
How do you get started?

  • Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.
  • Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important.
  • Collect receipts and information that you have piled up during the year.
  • Group similar documents together, putting them in different file folders if there are enough papers.
  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

3. Itemize
It’s easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area. It’s worth the bother when your qualified expenses add up to more than the 2014 standard deduction of $6,200 for singles and $12,400 for married couples filing jointly. Many deductions are well known, such as those for mortgage interest and charitable donations. However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. These deductions include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.


You can also deduct the portion of medical expenses that exceed 10 percent of your adjusted gross income.
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouses are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016

 
  Continued on Tax Strategies page 2 and Tax Strategies page 3.  

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