Preparing and filing taxes ranks up there with getting a root canal for most people. But filing taxes doesn’t have to be taxing. To make the process less painful, here are some important considerations for filing taxes in 2014.
1. Take advantage of time savers
Filing taxes is time consuming. Even if you have a professional preparing your taxes, you likely still spend a lot of time collecting the necessary documents, organizing information, and evaluating your choices. But you can take advantage of a few options that’ll decrease your stress level and give you more time to improve your golf game.
One time saver is electronic filing. E-filing can speed up your refund and notify you if the IRS identifies an issue with your tax return. You can use the IRS’ Free File service to file electronically. Depending on your income level, this service may let you use free tax prep software like Intuit’s (NASDAQ: INTU ) Turbo Tax and H&R Block’s (NYSE: HRB ) products to prepare and file your federal and state tax returns at no cost.
Also, consider the new simplified option for home-office deduction. If you conduct business in a space of your home “regularly and exclusively,” you’re all too familiar with filing a long and arduous form requiring you to enter a percentage of household expenses for mortgage interest, utilities, repairs, etc. Now you simply deduct $5 for each square foot for home office space. Keep in mind the limit is 300 square feet, for a maximum tax deduction of $1,500.
2. Contribute to a tax-advantaged account to lower your taxable income
Although it’s too late to make 2013 contributions to your 401(k), you may have other options. IRAs, SEP IRAs, and health savings accounts all allow contributions for 2013 up until the April 15, 2014 tax-filing deadline. If you don’t already have one of these accounts, you can still open one and make a 2013 contribution before the tax-filing deadline.
For example, individuals may contribute up to $5,500 to a traditional IRA for the 2013 tax-filing year ($6,500 for folks age 50-plus). Traditional IRAs are tax-deferred retirement accounts that offer immediate tax savings. But your deduction may be limited if you (or your spouse, if you are married) participate in a retirement plan at work and your income exceeds certain levels. My Foolish colleague Chuck Saletta summarized the details in a recent article.
3. Start planning your strategy for 2014
As you prepare your 2013 return, you’ll get a good idea of your overall tax picture. Use this information to make changes this year so that 2014′s return lowers your tax liability. For instance, maybe you can increase your 401(k) contribution, beef up your portfolio of tax-friendly exchange-traded funds, or invest in tax-free municipal bonds.
Filing taxes in 2014 really can be easy
Taxes don’t have to be taxing. Familiarize yourself with tax filing time savers, contribute more to a tax-advantaged account, and begin planning your tax strategy for 2014.
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Need more time to file your 2013 tax return?
If you can’t complete your 2013 federal tax return by the April 15, 2014 deadline, you can buy yourself more time.
Just file an extension to push the deadline back six months to October 15, 2014 and avoid IRS late-filing penalties.
There’s a catch, though. The extension only pushes back the due date for the paperwork. If you owe money, you need to estimate the amount, then file your extension and make your payment by April 15, 2014.
How to file an extension
1. EFile your tax extension online in minutes with TurboTax Easy Extension
File an extension and pay any income tax due by April 15 using our TurboTax Easy Extension web service. With TurboTax Easy Extension, you can:
Efile your federal extension
Make a payment of tax due, right from your checking or savings account
Print a PDF copy of the extension you efiled
Log into your Easy Extension account to see when your extension has been accepted by the IRS
Access the forms you need to file a state extension by mail.
2. Print the IRS extension form, fill it out by hand, and mail it to the IRS
Refer to IRS Form 4868: Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Print the form and instructions. Fill out the form and send it to the IRS address for your state.
If you owe federal taxes, include your payment with your Form 4868 and mail it—postmarked by April 15, 2014. (If you don’t make a payment for the taxes due, you could be liable for penalties and interest, even if you’ve filed for an extension.) Then complete and file your return on or before October 15, 2014.
Need to use a credit card to pay taxes owed?
If you’ve efiled or mailed Form 4868 and need to pay by credit card, you can use one of several IRS approved Electronic Payment Methods. You can pay with your credit card online or by phone. File your complete return by October 15, 2014.
If the IRS thinks your estimate of the amount of tax you owe is unreasonable, it may disallow your extension and assess a late-filing penalty.
If you underestimate the amount of tax you owe, you’ll have to pay interest on whatever amount you fail to pay by April15.
If you pay less than 90 percent of the tax you owe, you’ll end up owing a penalty of 0.5 percent of the underpayment every month until you pay the balance. For example, if you pay $600 on April 17, but discover when you complete your return that you really owe $1,000, you will owe 0.5 percent per month on the $400 that is overdue, or about $2 a month, until you pay the balance in full.
If you live outside the United States
If you live outside the United States, you may be able to get an extension by filing IRS Form 2350: Application for Extension of Time to File U.S. Income Tax Return if you believe you will qualify for special tax treatment. See IRS Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad to learn if this form might help you.
Do you need to request a state tax extension?
State tax extension guidelines vary. To see detailed information about state extension filing deadlines and mailing addresses, select your state of interest from this state tax authority’s website.
Remember, TurboTax Easy Extension can help you access the tax forms you need to file your state extension by mail.