Ask many Americans about their experience with tax time and they are likely to describe lots of paperwork, confusing rules, and late nights on their computer. But it doesn’t have to be that way. Getting organized now — instead of waiting until the days before April 15 — may help streamline your tax preparation and help you identify deductions that you might otherwise overlook in the last-minute rush.
You’ll need the right paperwork to get started (see table below), but you may want to consult a tax advisor to determine whether you need to consider additional factors that are unique to your situation.
Tax Preparation Documents
Why You Need It
|Form W-2 from your employer||The starting point for determining your taxable income.|
|Form 1099 and other statements from investment firms||Helps you compute capital gains, which are taxable, or capital losses, which you may be able to deduct. Dividends and interest are taxable at ordinary income tax rates. Contributions to a traditional IRA may be tax deductible if you meet income thresholds established by the IRS.|
|Real estate records||You may be able to deduct mortgage interest and real estate taxes. Expenses associated with investment real estate may be deductible. If you sell real estate at a profit, you may be required to pay taxes on a portion of the gain.|
After you have accounted for the most common aspects of tax preparation, dig a little deeper to discover other areas of your life that may offer tax breaks.
Children are not just a blessing to your family. They also bring with them a host of potential tax breaks.
- Dependency exemption. For the 2014 tax year you can deduct $3,950 for each qualifying child you claim as a dependent on your tax form. If your adjusted gross income is above a certain level, you may not receive the full exemption amount.
- Child Tax Credit. This credit can be worth as much as $1,000 per child under the age of 17 that you claimed as a dependent on your tax return. For 2014, the amount of the credit begins to phase out for joint filers with adjusted gross incomes that exceed $110,000 and for single filers and heads-of-household whose income exceeds $75,000.
- Child Care Credit. If you paid childcare for a dependent child under age 13 so you could work, you can earn a credit of between $600 and $1,050 in 2014. If you are paying for the care of two or more children, the potential credit you can earn increases to between $1,200 and $2,100. As with most other tax breaks, the size of the credit depends on your income and, in the case of this particular credit, how much you pay for care. (You can count up to $3,000 for the care of one child and up to $6,000 for the care of two or more).1
- Adoption credit. If you adopted a child in 2014, you can claim a credit of up to $13,190 help offset the cost. Income phase-outs apply for adjusted gross incomes that range from $197,880 to $237,880.1
You may be able to benefit from either a tax deduction or a tax credit if you had any of these types of expenses during 2014.
- Purchased an electric car or plug-in hybrid.
- Had student loan debt paid by parents.
- Had out-of-pocket expenses related to a job search.
- Had moving expenses associated with a first job.
- Were self-employed and paid Medicare premiums.
- Had jury duty pay that was surrendered to employer.
- Utilized the American Opportunity Credit and/or other government-sponsored education programs to pay for education expenses.
- Made energy-saving home improvements.
These are just a few of the tax savings that may await you come April 15. Of course, your individual circumstances will determine if you are eligible for these and other tax breaks. Your tax professional should be able to provide more information on what you do and don’t qualify for.
This communication is not intended to be tax advice and should not be treated as such. Each individual’s situation is different. You should contact your tax professional to discuss your personal situation.
1Source: TurboTax, “Birth of a Child,” updated for tax year 2014.
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