By Paula Pant.
Nobody enjoys paying more in taxes than they should. And most people understand that the best way to optimize their taxes is by learning as much as they can stomach about the tax code.
But there's just one problem: tax law changes constantly. Old provisions expire. New deductions and credits are created. How can anyone keep up with all the changes?
We can't give you an ultra-comprehensive summary of IRS codes within a single article. But we can point out a handful of tax laws that should be near the top of your radar.
The following eight tips might help you save on taxes in 2014.
#1: Maximize Your Retirement Accounts
This is a timeless classic: One of the best ways to save on taxes is by maximizing your retirement account limits.
During tax year 2013 (the year for which you'll be filing in April 2014), qualified individuals ages 49 and under can contribute $17,500 into a 401(k) or 403(b) account, and $5,500 into an Individual Retirement Account, or IRA.
Qualified individuals ages 50 or older can contribute $23,000 into a 401(k) and $6,500 into an IRA.
That means qualified people can defer taxes on $23,000 to $29,500 of their income, depending on their age. That can add up to a huge tax savings.
Remember: you can retroactively make prior-year contributions to your 401k and IRA until tax filing day. In other words, you have until April 15, 2014 to make contributions to against your 2013 limits.
#2: Weigh Traditional vs. Roth
Check with your financial advisor to determine whether you should shelter your taxes immediately (through a traditional IRA) or whether you should pay income tax upfront, in exchange for an exemption from capital gains and dividend taxes when you withdraw your earnings in retirement (through a Roth IRA).
There's no single "best" answer to the traditional vs. Roth question -- it will depend on your age, tax bracket and assumptions about the future -- so talk to your CPA and financial advisor to determine which one is better for you.
#3: Maximize Health Savings Accounts
In 2013, a qualified person ages 54 or under in a high-deductible health plan could contribute $3,250 into their individual Health Savings Account (HSA) or $6,450 into their family-plan HSA.
If you're 55 or older, you can contribute an additional $1,000 on top of those limits.
Your deadline to make these contributions is April 15, 2014, and this amount -- like your 401(k) -- is also tax-deferred.
#4: Buy Health Insurance
Under the provisions of the Affordable Care Act, commonly called "Obamacare," the deadline to purchase health insurance is March 31, 2014 -- prior to the tax-filing deadline.
Any individual who doesn't carry health insurance by that deadline will face a tax penalty. (Individuals are permitted to purchase an insurance policy through any qualified entity -- not just the official federal health-care exchanges.)
That tax penalty amounts to 1 percent of your household income, or $95 per adult and $47.50 per child, up to a $285/family maximum -- whichever is higher.
You won't pay that penalty when you file your 2014 taxes, though. Instead, you'll pay the bill when you file for 2015. But be cautious: This is one move you'll need to make in 2014 to help you reduce your future tax payments.
#5: File Jointly as a Same-Sex Married Couple
In June 2013, the U.S. Supreme Court struck down the federal Defense of Marriage Act.
Two months later, in August, the IRS and the U.S. Treasury Department issued a statement announcing that any same-sex couple that's "legally married in jurisdictions that recognize their marriages" will be given tax treatment as a married couple.
In other words: If you're part of a married same-sex couple, you can now file taxes jointly (or as "married filing separately," if you choose.)
This may allow you to recognize tax savings in a number of areas, including personal exemptions, claiming a dependent, making IRA contributions, claiming the child tax credit or the earned income tax credit, and itemizing deductions.
Furthermore, if you purchased health insurance for your same-sex spouse through your employer, the money that you spent on premiums is now qualified as tax-deductible, just as it is for opposite-sex married couples.
Here's one more way to save on taxes: If you were legally married during tax years 2010, 2011 or 2012, you can file an amended tax return as a married couple. This could potentially allow you to claim bigger deductions, which allow you greater tax savings.
Hurry to file these -- particularly the 2010 amended return -- before the 3-year statue of limitations expires.
#6: Claim a Home Office Deduction
In prior years, many people avoided claiming a home office deduction because the process felt cumbersome.
Starting January 1, 2013, however, that process became a lot easier.
Qualified freelancers, contractors and business owners can now claim a flat home office deduction of $5 per square foot, up to a maximum of 300 square feet. (In previous years, you had to maintain actual records of the cost of maintaining that home office space.)
Employees who work-from-home can also claim the deduction if they exclusively use the space "for the convenience of (their) employer."
#7: Write-Off Your State and Local Sales Tax
Do you itemize your taxes? If so, you have the choice between writing off your state and local income taxes or the sum total of the state and local sales taxes that you paid in 2013.
Talk to your CPA to decide which of these two options will give you a larger deduction.
#8: Deduct the Cost of Moving to Your New Job
Did you accept a new job in 2013? If so, congratulations.
If you're like many Americans, you might have needed to move more than 50 miles from your previous home in order to accept this new position -- and that means the cost of moving may be tax-deductible.
If you drove your car, for example, to your new town or city, you can deduct 24 cents per mile, plus parking and tolls. If you flew, you can deduct the cost of airfare and lodging while traveling from your former home to your new one.
Two snippets of good news: This tax deduction is available to people who claim the standard deduction (who don't itemize.) And it's also available to self-employed individuals who move to a new location to run their own business.
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