Summer is almost over and a New Year is just around the corner. It’s still not too late to make adjustments to your withholding or estimates to make sure your 2014 taxes will be done correctly and you will not be surprised by a balance due or excessive refund.
Extenders That We May Lose – We don’t know when (or if) Congress will pass tax extenders for adjustments and deductions that ended in 2013, including:
- Teachers’ out-of-pocket expenses. (An adjustment of up to $250 in classroom expenses for K-12 teachers directly on Form 1040.) These are still deductible on Schedule A, but are subject to a limitation of 2% of Adjusted Gross Income.
- State and local sales taxes in lieu of state withholding as an Itemized Deduction;
- An adjustment for qualified tuition and related expenses (as opposed to the credits available for education);
- Mortgage insurance premiums as an itemized deduction;
- Tax-free distributions from an IRA if sent directly to a charity for some individuals;
- Excluding the taxable gain on the discharge of principal residence indebtedness; and
- Bonus depreciation and the limitations on expensing assets.
Life Changes That Affect Your Taxes: Marriage, divorce, the birth of a child, or buying a home, are examples of some of the more common life-changing events that affect your taxes. When any of these occur, you may need to adjust your withholding or estimates.
- You may file a new Form W-4, Employee’s Withholding Allowance Certificate, at any time during the tax year to increase or decrease the withholding at your job. The IRS has a Withholding Calculator on their website. When making changes, be sure to include all income from all sources in the estimate. Many states use similar forms.
- You may add to or subtract from your estimated quarterly payments at any time during the year if your circumstances change.
- Download Publication 505, Tax Withholding and Estimated Tax for more information.
Recordkeeping and Organization of Records:
- Make sure the records for your 2013 taxes are organized and put in a safe place in case you need them for referencing in preparing your 2014 taxes. It is OK to sort and keep the files electronically – you may scan them into pdf files, but be sure to back the files up on an external hard drive, or by using the “Cloud.” The IRS does not care if “my computer crashed and I lost all my records!” Keep copies of your bank statements and credit card statements along with all your other tax records. If you are audited, you need the receipt and proof of payment (credit card, cancelled checks), as well as the business purpose or other reason for deducting the expense.
- Organize your 2014 records now. Set up files by deduction using the line numbers on the IRS forms. For example, if you are self-employed and file Schedule C, Profit or Loss From Business, you might have files set up for Line 8, Advertising, or Line 18, Office Expenses, and so on. If you maintain your files in this way, your tax preparation and any potential audit will go smoothly and easily.
Watch the IRS Website for Changes:
Planning now can save you a lot of money at tax time! Make sure you are taking advantage of all of the deductions you are legally entitled to, and not paying a penny more than legally required. Calculate your withholding carefully to make sure you do not owe a significant amount of taxes you can’t afford to pay.