Personal FinanceTaxes

Tax Preparation – Last Minute Tax Deductions

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If you’re like me you put off filing your taxes to the last minute every year. This year, like every year, the tax laws change. A few of the changes are important to be aware of. Some changes, like the Affordable Care Act, will affect everybody.

You also may have noticed that it’s more difficult to get through to the IRS this year if you’re trying to contact them to have questions answered. This is because of budget constraints, resulting in the IRS only being able to answer about half the phone calls received from taxpayers.

Last Minute Tax Breaks

 

State and Local Sales Tax Deductions

If you live in one of the nine states that do not have state income state, you should consider taking deductions for state and local sales tax. Anyone can take these deductions, but if your state has an income tax it’s usually more beneficial to take the write-off for those taxes instead.

You can go to www.irs.gov and use the “sales tax deduction calculator” to determine how much sales tax you can deduct, based on your state and local sales tax rates.

Mortgage Insurance Premium Deductions

When you purchase a house with less than 20% down, your lender will normally require you to purchase private mortgage insurance. If you took a loan out after 2006 and your adjusted gross income for 2014 was $109,000 or less, you may be able to deduct your mortgage insurance premiums.

Donate a Portion of your Retirement Account to Charity

If you’re 70 and a half or older, you can donate up to $100,000 of your individual retirement account to charity. This goes towards your minimum required distribution and is not included in your adjusted gross income.

Reducing your adjusted gross income (AGI) could help you reduce taxes on your social security benefits and also help you stay below the line for the Medicare high-income surcharge.

Investment Income Tax

 

New Investment Income Surtax

If you made money in the past year from the bull market there’s a good chance you’ll have to pay the new surtax on that investment income, which is 3.8%. The surtax, came with the Affordable Care Act in 2013. If affects married taxpayers with a modified adjusted gross income of $250,000 or more, and single taxpayers with a modified adjust gross income of $200,000 or more.

Health Care Tax Requirements

Check the Box

One of the most noticeable changes on this years’ tax forums is the health care law’s tax requirements. For the majority of taxpayers this mean just simply checking the box on the tax forms.

Check the box on form 1040 – line 61 if you had health insurance through your employer in 2014. If you received insurance through Medicare, Medicaid, or Tricare check the same box.

State Exchanges

If you purchased health insurance through one of the state exchanges you’ll have to do more work than just check a box. You’ll receive the exchange form 1095-A. The form will include the amount of subsidy you’ve received and your monthly premiums. You’ll need this statement to complete your return.

After you have that information in hand, you’ll need to fill out form 8962. This form will decide whether or not you received too large of a subsidy based on your 2014 income. You’ll receive a larger tax credit if you overestimated your income for the year, if you underestimated your income you’ll owe money.

Uninsured for More than 3 Months

If you went without health insurance for more than 3 months in 2014, you’re going to get penalized. The cost of the penalty for 2014 is $95 or 1% of your household income, whichever is higher. There are many exemptions to this law that are worth looking into, which can be found at www.healthcare.gov.

Reduce Your Tax Bill

 

Traditional IRA Contributions

You can make 2014 contributions to an IRA up until April 15. This can reduce your adjusted gross income and make you eligible for other tax breaks based on your adjusted gross income.

You can make deductions on IRA contributions of up to $5,500 or $6,500 if you’re over the age of 50. You can only make these deductions if you’re not enrolled in a workplace retirement plan, such as a 401k. If you have a company plan, the IRA deduction is not available in 2014 if income was higher than $60,000 for single individuals and $96,000 for married couples filing jointly.

Tax Prep Services

In the past, I’ve always filed my own taxes, even though I flinched at the thought of doing them. I have taken personal income tax courses and have pretty good understanding of the tax laws. This year I’m not feeling quite as ambitious. Instead of doing them by pen and paper, I’m going to do them on a tax prep software.

If you have the same feelings towards doing your taxes I have, or doing your own taxes by hand confuses you, I’ve found a couple of well-established companies that offer tax preparing software. Of the two, the first one is E-file.com and the other one is E-smart Tax. According to both of their websites, it sounds like you might be able to file your taxes for free with either of these two. I’m planning on using one of the two, when I finally work up the motivation to file my taxes I’ll let you know what service I decided to use, and if I liked it or not.

To give you more options, here are a few more popular tax prep services. Feel free to take a look at them and compare them to one another. If you’ve used any of these services in the past, I would love to hear your feedback on them!

You’ll notice I didn’t list TurboTax below, this is because they’ve been having problems this year with people hacking their system.

If you’re going to need a tax extension this year, you can use a service called TaxExtension. They’ll get you a six-month extension instantly. I know people who used this service in the past, and they said it was simple to use.

Author: Tyler DeBroux

Tyler started Oddball Wealth towards the end of 2014 after graduating college, as a way to stay relevant in his area of study, stimulate his mind, and to educate and help others.

Tyler has worked in the financial services industry, as a financial advisor, helping his clients make wise financial decisions and personalized long-term financial plans. Since graduating college in December of 2014, Tyler has paid off more than $15,000 in student loan debt and counting, his goal is to have all his student loans paid in full by the in of 2016.

Tyler is an entrepreneur and an expert in personal finance. Two of his many hobbies include investing and building online businesses. He is also a big advocate of early retirement and an aggressive saver, who utilizes any financial resources and tools available to him to help reach his goals for achieving financial independents.

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