It's April 7th. You have about a week left before you have to file your tax return or an extension. But, it also means that you have this time to also think about what you are really doing when you file and pay your taxes for 2014.
A little perspective - would you rather give more money to the government, or keep more for yourself, legally, and minimize your tax bill? This can apply to both wage earners and self-employed people.
If you are a wage earner, and recieve a regular paycheck, then the first thing to do is to check that your withholding is accurate. It is very common for people to treat their withholding as an unintended savings account, because they don't keep their withholding up to date. Realize that if you usually recieve tax refunds each year, and you have no life changes that affect taxes, then you are really giving the government an interest free loan. So, instead of doing this, change your withholding so that you expect to have a zero refund and zero amount due next year. While this won't help you for 2014, it will keep a few extra dollars per paycheck in you wallet (better yet - savings account) this year. With additional funds from adjusting your withholding I suggest that you put the extra amount into a savings account, or better yet, into a tax-deferred retirement account if you do not have one through your employer.
Lucky enough to have an employer that sponsors a retirement plan such as a 401k? And even luckier if they offer any sort of matching contribution? You really need to take advantage of it. Consider it a raise, pre-tax, and all you need to do is contribute a percentage of your pay (which reduces your taxable income and therefore your withholding). Need proof - there are any number of calculators available online that will tell you your net paycheck after inputting your gross, withholding info and the percentage going to your 401k. Compare what you are doing now to what you could be doing, and you will see that just because you contribute more, your net paycheck will change, but not as much as you may think.
If you have an IRA or want to open one up, and do not have other types of retirement accounts through an employer, then try to maximize your contribution before April 15. Many banks and financial institutions offer them, and many can be opened up online. You want to make sure that the contribution is allocated to the correct year. (If you want to impact your 2014 taxes, then you need to make sure a contribution is marked for 2014 tax year).
For self-employed persons, it may be better for you to open and fund a Simple or SEP IRA, or a solo 401k. Since there are different setup and funding requirements for each of these, you will need to work with your tax preparer or financial planner to do this right. As of today, you can still open and fund a SEP IRA if you can fund more than $5500 (the regular IRA amount). I previously wrote about this, it can be a powerful way to keep more for your retirement.
For anyone with retirement accounts, and under a certain AGI, don't forget to check if you qualify for the saver's credit.
Another way that is often overlooked is the usage of an HSA plan when paired with your qualifing high-deductible health insurance plan. While you need to make sure that your health insurance plan qualifies for an HSA (not all do), once it is setup, you can not only put money away like an IRA (mark it for prior year-if setup in that year) up until April 15. One of the better things about the HSA is that you are using it as a pre-tax savings account AND when you do use it, it will not be taxed unless for non-qualifying expenses. These funds, can be used many years down the road and can be used for long-term qualifying care. Another interesting way to use this is to use your HSA to invest like you do in your retirement plans. For instance, you can put aside a certain amount each month into your general HSA, and also an amount into the investment portion of your HSA. For those that are interested in longer term savings and are comfortable with investing (instead of just a very small interest rate on savings), it can be an interesting way to increase your available health care funds for later in life.
All of these tips, while seem maybe minor, can add up and you might be surprised by the impact on your income taxes. Just remember this concept--Keep for yourself by saving for retirement and health care.
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