Spring is here and if you haven’t done so yet, you have less than two weeks to finish your tax return or file an extension.
If you find that you owe Uncle Sam, but haven’t finalized your return yet, here are a few items that, if you qualify for, you may be able to still get done to lower your tax bill before you file April 15:
• Traditional IRA contribution – up to $5,500 if you are under 50 or $6,500 if you are 50 or older (income limits may apply). And if you make your contribution before April 15, you can deduct it on your 2014 taxes.
• SEP IRA – your 2014 SEP contribution can actually be made by October 15, 2015 if you file an extension. As an employee, you can contribute up to 25% of your salary up to $52,000. If you are self-employed, you can contribute 20% of your net self-employment income after your self-employment tax deduction, up to a maximum contribution of $52,000.
• Health Savings Account: If you are insured through a high-deductible health plan, total contributions for 2014 are $3,250 for an individual and $6,550 for a family plan.
Don’t forget that by lowering your adjusted gross income (AGI) on your federal return, you are also lowering your tax bill on your Michigan income tax return – another plus.
If after filing your return, you find that you owe too much or received a larger refund than you anticipated, you can always adjust your income taxes that are withheld from your paycheck by completing a W-4 through your employer. While it is always nice to get a refund instead of writing a check to the government, I never like my refund to be too large. I’d rather keep the money in my pocket throughout the year, instead of Uncle Same holding onto it!
The IRS has a convenient tool to pay your tax bill electronically without a cumbersome registration process. It is called IRS Direct Pay, which you can access on their website: www.irs.gov. You can schedule the payment up to 30 days in advance and it is free! It is simple to use, the payment will take 2-3 days to process and you will get a confirmation of payment. You can use IRS Direct Pay to pay your tax bill, make a payment if you are filing an extension, and to pay your estimated tax payments. This is a convenient feature if you like to complete tasks electronically. Of course, if you do not want to use this electronic feature, you can make your payment by sending in a check via the US mail.
While everyone seems to be focused on last year’s taxes, now is also a good time to start thinking about ways to lower your tax bill for 2015. One great way to do that is to contribute to your workplace retirement plan, if you are not already doing so. If you are, but not maximizing the amount you can contribute, you should increase your contribution, if you can afford it. A friend of mine increases her contribution by 1% each year, thereby increasing her retirement contributions without feeling a big pinch in her weekly paycheck.