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.