December 1, 2014
As another year draws to a close, there may still be opportunities to reduce your 2014 taxes. Tax planning can be beneficial regardless of your income level or the complexity of your taxes. A few simple steps can do much to reduce your tax bill, or increase your refund on April 15.
Maximize retirement contributions
One of the most effective methods to reduce taxable income is to maximize retirement contributions. If you participate in a 401k plan through your employer, you may defer a maximum of $17,500 ($23,000 if you are over age 50) to your 401k plan for 2014. You may have signed a document indicating that a certain percentage of each paycheck will be withdrawn for 401k contributions each paycheck, however, employers will often allow employees to modify this percentage. This can be a particularly effective option if you will receive a year end bonus. You may also be eligible to contribute to a traditional or Roth IRA account. The maximum contribution for 2014 for IRA accounts is $5,500 ($6,500 if you are over age 50). Keep in mind that you may not be eligible to make an IRA contribution if you participate in a workplace retirement plan, and your income is too high. IRA contributions may be made for 2014 retroactively through April 15, so consult with your tax accountant to see if an IRA contribution would be advantageous for you. Individuals with adjusted gross income of less than $30,000 may be eligible for a credit of up to $1,000, and married couples with adjusted gross income of less than $60,000 may be eligible for a credit of up to $2,000 on their tax returns for making retirement plan contributions in addition to the normal tax savings.
Additional Planning Opportunities
Tax planning is never a ‘one size fits all’ approach. A strategy that works well for one person may not work for another. Contact a tax advisor to help determine a tax strategy for you.
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