Tax Return Guide for 2014: How to Dominate your Taxes
Get fired up – tax filing season is here!
The tax filing start date for 2014 tax returns – January 20th – has already passed. You wouldn’t really know it though. The IRS website still has many prior year forms versus up-to-date 2014 versions. There was some good news, as Congress extended a number of tax credits and deductions for 2014 (i.e. home energy tax credit, education deduction, etc.) just this past December 19th. However, there is little to no official documentation out there, even though the IRS said the late extension would not cause delays.
Also, I have not received my W2 yet and have received just one 1099 forms (out of multiple), despite their deadline send date of January 31. Doesn’t it seem like tax documents get pushed back further every year?
My goal is to wrap everything up by mid February – but that may be just a dream at this point. If you can, it is important to try to file early as e-file tax identity theft fraud, where fraudulent tax returns for refunds are filed in your name, is a growing problem that you want to be able to get out in front of. The longer you wait to file a return, the greater the chance a fraud could beat you to it and claim a refund in your name. It has gotten so bad, that Turbotax shut down state tax returns for a day this year because of a huge uptick in fraudulent tax returns, which has caused a number of states to stop accepting state e-filed returns. Hopefully, it is not related to the Anthem hack. If that’s not incentive to file early, I don’t know what is.
When you are ready to go, what follows should help. It is a high-level 2014 tax return guide with noteworthy dates, credits, deductions, reminders, and tips to help you get the most out of your tax return.
The tax filing deadline for 2014 calendar year taxes is Wednesday, April 15th – no weekend or holiday extensions this year, with that mid-week deadline. Also, keep in mind that this is the date that you must have your return to the IRS postmarked or e-filed.
Military/navy personnel and expats have until June 15th to file.
Stuff happens. If you get later paperwork or cannot finish your return by the April 15 deadline, you can file a tax extension. To do so, file IRS Form 4868 by April 15th. The deadline for extended tax filing is October 15, 2014 (an additional 6 months).
Note that filing the extension does not get you off of the hook for paying taxes for 6 months. You still need to pay any estimated taxes by the April 15 deadline. If you don’t, you will owe interest and possibly a penalty on your taxes owed.
It is too late to take advantage of many tax-cutting strategies like charitable contributions or contributions to employer-sponsored tax advantaged accounts for the 2014 year. However, there are still a few things you can do to lower your 2014 tax liability before the deadline.
You can still contribute to personal retirement accounts, such as a traditional IRA, Keogh Plan, HSA (believe it or not), or SEP IRA. Contributions are considered tax-deductible since you will pay taxes on that income when you withdraw funds. You can contribute until the tax deadline. Doing so will lower your overall adjusted gross income (AGI) and potentially bring you a bigger return or cut the taxes you owe.
Make sure your income is eligible for these contributions, based on income level, before you contribute. If your income is low enough, you might also qualify for the Saver’s Credit for contributing to one of these types of retirement accounts.
Should I Itemize My Taxes or Take the Standard Deduction?
A little work can pay off big time. Unless you have virtually zero expected tax credits or deductions, ALWAYS run the numbers to see if itemizing deductions would yield a lower tax obligation versus a standard deduction. Itemizing deductions could put you in to a lower tax bracket so that some of your income is not taxed at higher rates.
As a refresher, the standard deductions for 2014 are as follows:
- $6,300 for single filers (up from $6,200 last year)
- $6,300 for married, filing separately (up from $6,200 last year)
- $12,600 for married filing jointly (up from $12,400 last year)
- $9,250 for head of household (up from $9,100 last year)
- $1,050 for dependents (up from $1,000 last year)
If your itemized deductions don’t total up to be above those levels, the standard deduction is the way to go (and much easier).
What are Some of the Most Popular Tax Deductions and Credits?
If you did any of the following during 2014, it could impact your return:
- Make home energy efficiency improvements? You could qualify for an energy tax credit. By the way, the coverage for home energy efficiency items like windows, doors, furnaces, etc. was one of the credits that was retroactively restored for 2014.
- Have self-employment income? You may be able to deduct business related expenses and your home office and can contribute a portion of your income to self-employment retirement accounts, such as a solo 401K or SEP IRA.
- Pay tuition or have other education related expenses? There are education tax credits and deductions.
- Have a child this year or act as guardian for at least half a year? You could claim a child tax credit.
- Make charitable tax donations? You can deduct them.
- Contribute to an HSA outside of payroll? Deductible.
- Pay interest on a mortgage or property tax? Deductible.
Last year, 125,821,000 of 149,684,000 (84.05%) returns were e-filed. I’d recommend you e-file, if you’re part of the 16% that doesn’t. It’s the safer, quicker, and more reliable route to go.
There are many cheap or free ways to e-file. I strongly recommend both H&R Block and Turbotax over other available alternatives. In choosing between the two, I’ve found that H&R Block offers more support at a lower cost, and I’ve gone with them the last few years.
For VERY basic returns, both companies offer a free 1040-EZ federal e-file version if you meet certain requirements (For Turbotax: $31,000 or less, $60,000 or less for active military, or to those who are eligible for the Earned Income Tax Credit. For H&R Block, your AGI must be $53,500 or less and you must be age 53 or less to qualify). State returns can require additional fees, but some states are free as well.
If you don’t meet those requirements, you’ll probably want to opt for a paid online edition that best suits your needs.
When it comes time to pay any taxes due, I’d recommend paying your taxes online.
Contrary to popular belief, getting a tax refund is not a good thing. That is, unless you think loaning your paycheck to the federal government, interest-free, is good. I call this myth and the spending spree that typically follows Tax Refund Windfall Syndrome.
The average tax refund last year was $2,792. This means that the U.S. government received an average of $2,792 in interest-free loans from 109,499,000 lenders (aka taxpayers), for a combined $305.7 billion. This works out to just over 73% of all returns resulting in a refund.
If you want to stop giving out interest-free loans, you can change your withholding tax allowances through your payroll department. Aim for a slight amount due back to the government, without having to pay a penalty. That way, you’re the one getting the interest-free loan.
If you start getting worried or just plain impatient, you can check on your tax refund status. The IRS claims that, “more than nine in ten” applicable e-filed returns will receive refunds in less than 21 days.
Beware of scams in the form of helping you check your refund status. Keep in mind that the IRS will never send you an email with this option. To check it, you should go to www.irs.gov and click ‘where’s my refund‘.
I recently had an H&R Block giveaway for readers who offered tax tips in the comments. Here are a few that stood out:
“I bought a house in 2013, and needed to itemize deductions instead of using the standard deduction. Turbo Tax required me to upgrade to use itemized deductions and was going to charge $20 for it.
After a few minutes of Google searching I found out that H&R block allowed itemized deductions on the free version of their online tax software. I switched to H&R block, and I was already planning to use them again for the 2013 tax year.”
“As soon as we get our W2’s, we put them in our tax folder on the corner of the coffee table and put the tax documents we get so when we’re ready, it’s all in one place and a reminder to e-file as soon as we can if we are getting a refund so we can use some of the cash to contribute to our IRAs.”
“A tip for those who pay estimated taxes. I have some freelance income in addition to my normal 9-5. Once my freelance checks come in, I immediately go the the IRS tax payment system and have them withdraw
30%! No worrying about meeting deadlines when I just do it every time I get a payment.”
“I check our taxes a few times a year and how much we have paid in and will likely owe to make sure we are on track to be as close to zero for a refund as possible. I primarily do this after my husband receives a bonus or we have a larger stock transaction, those bigger events that can throw the year off. Keeps me from having too big of a bill in the end and to know what to expect!”
“Who knew I’d be thanking Congress but they renewed the tuition and fees deduction for tax year 2014 which is great since my wife started her master’s program this year and we aren’t eligible for any education credits. It will be a nice help.”
“I always have my refund direct deposited into my high yield savings account so I am not tempted to spend it.”
“Throughout the year, keep a spreadsheet listing every form W-2, 1098, etc.) and itemized deduction (state sales taxes, donations, etc.) that you will need, so that once they come in you can check them off the list and know you’re ready to file.”