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Year end tax tips

December 17, 2014

Albert Einstein said “The hardest thing to understand in the world is the income tax.”

2014 will soon come to an end.  With the end of the holiday season comes the beginning of the tax season. There are steps you can take now to start preparing for tax season and maybe even save a little more on taxes.  Here are a few easy to understand tax tips to give you a boost before tax season arrives:

Maximize retirement contributions.

  • Make additional contributions to your 401k or 403b before December 31, 2014. These contributions are usually tax deferred. The contributions you make in 2014 are not included in your taxable income.  So, your income tax will be figured on a lower amount.
  • Start or contribute to an Individual Retirement Account (IRA). Traditional IRA’s are tax deferred.  You can make these contributions up to April 15, 2015 and count it for the 2014 tax year.  Limits are typically up to $5,500 per tax filer or $6,500 for those over age 50.

Give to charities. Many people give to charities throughout the year.  You have until December 31,2014 for your charitable contributions to be counted as an itemized deduction for the 2014 tax year.  To take the deduction, you must itemize your deductions using IRS form 1040A.

  • Follow the rules for qualifying deductions – irs.gov. The recipient must be a qualified charity. You’ll need a receipt or letter of acknowledgement if the donation is more than $250. Verify donations under $250 with the cancelled check or a bank statement showing the contribution.  Special rules apply to the donation of a car, boat, or airplane.
  • Check out the charity at the Arkansas Attorney General’s database – arkansasag.gov/charity. All charities that solicit donations in Arkansas must register and file annual informational returns with the Attorney General. Check the database before you donate to make sure you are giving to a reputable charity. You can also see how much of your donation goes to administration or fundraising costs.

 

Organize for tax filing.

  • If you haven’t already done so, now is a good time to start organizing your tax documents so you won’t have to scramble at the last minute. If you’re planning to itemize, this will include amounts paid for childcare, charitable donation receipts, medical and dental expenses and other deductible expenses.
  • Set up a folder or envelope to collect incoming tax documents. Organizations will soon begin sending year-end tax documentation such as home mortgage interest statement, interest income, and W2s. Some charities send letters of acknowledgement of donations you’ve given throughout the year. As you receive statements in the mail, place anything related to taxes in the folder or envelope you prepared.
  • Consider your filing options. Tax filers who made less than $60,000 in 2014 can use IRS Free File.  For a faster refund, submit your taxes electronically and have your refund deposited directly into your bank account.  Free options for filers who need assistance are Volunteer Income Tax Assistance (VITA) for filers who made less than $53,000 and Tax Counseling for the Elderly (TCE) for filers age 60 and older. To locate the nearest VITA or TCE site near you call 800-906-9887 or use the VITA Locator Tool at http://irs.treasury.gov/freetaxprep.

Laura Connerly, Ph. D.

Assistant Professor – Family and Consumer Economics

University of Arkansas Division of Agriculture Cooperative Extension Service

The Cooperative Extension Service is your source for reliable, research-based information to improve quality of life. Discover the latest recommendations for money management, nutrition, health, parenting, relationships, and personal development. Learn more at www.uaex.edu

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