- By Joe O’Boyle
With the ever-ominous April 15th tax deadline around the corner, filing procrastinators are likely beginning to panic. Even this late in the game though, there are still a few things you can do to get organized and boost your tax refund.
For most taxpayers, saving for retirement is one of the most efficient ways to lower your taxes while also building a nest egg. So, with a focus on leveraging your retirement savings, here are a few tips to help you make it through tax day.
1. Double check for Deductions
When you’re frantically pulling together your records at the last minute, you might miss opportunities for tax deductions. Don’t let that happen.
(MORE: Don't Miss These Tax Breaks)
Quickly go through your credit card and bank statements to make sure you’ll claim any charitable contributions you made last year. While most people remember their big donations to favorite charities around the holidays, many forget about the smaller ones throughout the year.
Many financial institutions now offer a full 2014 year-end report, which categorizes all your spending and charitable contributions. If yours does, this is an easy way to find missed deductions when you’re short on time.
If you’ve been saving money for a child or grandchild’s future education in a 529 college savings plan, check with your state to see if it your contribution is eligible for a state tax deduction.
2. Contribute to a Traditional IRA
One way to reduce your 2014 taxable income (and bolster your retirement savings) is to contribute to a traditional Individual Retirement Account (IRA) by April 15. If you’re eligible, you can fund it with up to $5,500 ($6,500 if you’re over 50).
(MORE: How to Survive the Alternative Minimum Tax)
Your traditional IRA contribution may qualify for a tax deduction. Eligibility for that write-off depends on your 2014 marital status and whether you or your spouse had a retirement plan available at work last year. If neither you nor your spouse had access to an employer-sponsored retirement plan, you’ll be able to receive full tax deductions.
To figure out eligibility and details on the deductibility rules, I encourage you to check out the information available at the Internal Revenue Service (IRS)’s website.
Remember to note on your tax forms that the IRA contribution is for the 2014 tax year. If you don’t specify the year, the contribution might go toward your 2015 IRA, which will decrease your taxes a year from now, but won’t be much help this time around.
3. Self-Employed? Consider a SEP IRA
Self-employed individuals, such as sole proprietors and independent contractors, should consider contributing pre-tax dollars to a 2014 SEP IRA, which also can be funded until April 15. For 2014, the maximum pre-tax SEP IRA contribution is $52,000.
A small business run by a husband and wife could potentially put away $104,000 pre-tax; if their effective tax rate was 33 percent, maxing out their SEP IRA contributions could save them over $34,000 on their federal tax return alone.
Most people are unaware of the Saver’s Tax Credit, but it may benefit you to become familiar with it if you were a low- or middle-income worker last year. The Saver’s Credit is a tax credit that’s applied to the first $2,000 of voluntary contributions by workers to their 401(k), 403(b) or IRA plans. Individuals can receive a maximum credit of $1,000; couples can get a credit of up to $2,000.
To qualify for this credit on your 2014 return, your income must have been less than $30,500 if you were single or $61,000 if you were married and will file jointly.
5. Take a Capital Loss Carryover
Procrastinators are often in such a rush to file their tax return that they sometimes forget to check their prior year’s return. Why is this look-back review important when scrambling to get your taxes finished? You may have capital losses from investments in past years that can be carried forward and written off against your 2014 capital gains.
If you don’t have any gains to report for 2014, you can use a capital loss carryover from previous years to deduct up to $3,000 in losses on your 2014 tax return. Reducing your tax liability may help take the sting out of a former investment loss.
My Parting Advice
Procrastination is a big source of stress I hear about from my clients each tax season. My parting advice: Start earlier next year! Not only can you maximize your retirement savings throughout 2015 for greater tax efficiency, you can make the April 15th deadline less stressful.
Securities and Investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC). Please note that neither Voya Financial Advisors, Inc. nor any of its agents or representatives provides legal or tax advice. For complete details, consult with your tax adviser or attorney.