The beginning of tax season usually raises questions, concerns and possibly your stress level too, as keeping up with the latest tax laws and updates can be time-consuming and even confusing. According to TurboTax, there are many reasons why almost a third of people delay tax filing until the last few days before they are due, including procrastination and equating tax filing to mundane yard work.
But filing your taxes can only be put off so long. As you’re gathering statements, organizing receipts and documenting your deductions, there are some tax issues that are of importance for the 2014 tax year that may apply to you. Before you begin your tax return, check out these ten tips and topics:
You must have earned income to be able to contribute to a Roth IRA. The income limit increased for the 2014 tax filing year. If you’re married filing jointly and earn $181,000 or less (modified adjusted gross income) you may contribute up to $5,500. If you’re a single filer and earn $114,000 or less (MAGI), you may contribute up to $5,500. While you’re able to contribute to your Roth IRA until April 15th, 2015 if eligible, the account must have been opened by December 31st, 2014.
The Affordable Care Act includes a new provision that places a 3.8% tax on various forms of investment income for individuals, trusts and estates. For individuals, this surtax depends on net investment income and modified adjusted gross income. For trusts and estates, the calculation depends on undistributed net investment income and adjusted gross income. For those with investment income, this tax could be unfortunately substantial. To learn more about the components of this complicated surtax and how it will affect you, contact your financial advisor or tax professional.
The Affordable Care Act. Obamacare brings with it several new forms and requirements. When filing, your tax forms must indicate the minimum health coverage was obtained if you’re not considered exempt. If you did not get the required coverage and are not exempt, a penalty will have to be paid. On the flip side, there is a premium tax credit which provides some relief for taxpayers who obtained the required insurance. For those who have employer-provided health insurance tax filing is fairly simple, requiring just a check in the correct box.
Temporary Tax Breaks Extended. It’s better late than never. Congress has extended a number of tax breaks for 2014. Teachers will be able to deduct up to $250 for supplies purchased with their own money, college and grad school students can deduct for tuition, fees and related educational expenses up to $4000, homebuyers may deduct mortgage insurance premiums, those who were disabled prior to age 26 may contribute up to $14,000 per year into a tax free savings account under the Achieving a Better Life Experience Act, and anyone over 70.5 may make a tax-free distribution from their IRA up to $100,000 if it is contributed directly to a charity.
FSA New Carry-Over. If you’re familiar with medical flexible spending accounts (FSA), you may be aware that typically employees lose unused money at the end of a plan year. The IRS recently announced employees may carry over $500 to the next benefit year, which more and more companies are adding to their benefits packages.
Tax News and Deadlines. It’s a good idea to always stay informed of new laws or news that may apply to your tax situation. Know your deadlines and if you haven’t received your W-2, 1098 or 1099 forms by January 31st or shortly after for the previous year, this could be concerning. Your financial advisor is a good source of information and can consult their tax partners with your questions.
Same-Sex Filing. The IRS does accept married filing jointly returns from same-sex married couples regardless of whether or not their home state recognizes the marriage. State tax office rules may vary and same-sex couples should stay informed of updates to state filing rules.
Detailed Records. The IRS requires specific records for items such as miles driven and investment sales. It’s important to start logging these items at the start of the new year, even though it’s time consuming, so you can claim all of your deductions accurately. The IRS allows a specific amount per mile for unreimbursed miles driven for business, medical needs and charitable work. Also, if an investment is sold, the cost basis, sale price and date of each must be noted to determine a gain or loss. Your financial advisor can keep track of this information for you.
Red Flags. The IRS has millions of tax returns to process. There are certain items that raise red flags and can potentially trigger an audit. For example, if you’re claiming a large charity donation when your income is low, if you’re claiming a child as a dependent and so is your ex-spouse, or if you’re writing off large entertainment expenses with clients without a job that supports client service, your tax return could land in the audit pile.
Don’t Procrastinate! Yes doing your taxes holds the same level of enthusiasm as doing the laundry or that yearly medical appointment. But it has to be done and on time. It’s better to start early in case you have questions or think you can do it yourself but then end up needing professional advice. You may also get your refund more quickly if you file in February rather than mid-April. Tax season doesn’t need to be stressful, remember there’s plenty of support out there.
Lastly, if you happen to get audited, all you have to do is prove to the IRS that you are paying all of your taxes. They will either conduct the audit in person or via mail and propose a change that you will agree to or appeal. If you agree to the proposed change, you may have to pay more taxes and interest or a penalty.
Neither the Firm nor its agents or representatives may give tax advice. Individuals should consult with a qualified professional in these areas regarding the applicability of this information to his/her situation.
Investment advice is offered through Bayntree Wealth Advisors, LLC, a registered investment Adviser. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC.