7 Valuable Things You Can Learn From Your Tax Return
Apr. 28, 2015 Kiplinger
Look for a New Bank Account
Your smallest source of income in 2014 was likely your bank. Were you disheartened to learn that the amount of interest you earned on your emergency savings account won’t pay for a gallon of milk? You’ve got lots of company. The average interest rate for a bank savings account is 0.09%. (Financial institutions aren’t even required to report interest payments of $10 or less to the IRS, although you’re still supposed to report it on your tax return.)
What to do: Consider switching to an online savings account. Some are yielding interest of 1% or more.
One of the advantages of doing your own taxes (or carefully reviewing your professionally prepared return) is that you can see how much contributions to a tax-deferred retirement plan reduce your taxable income. You’ll have to pay taxes on the money when you take withdrawals, but hopefully you’ll be in a lower tax bracket by then.
What to do: Increase your contributions. In 2015, you can stash up to $18,000 in a 401(k) or similar employer-provided plan, or $24,000 if you’re 50 or older.
If you itemize, take a few moments to review how your charitable deductions lowered your tax bill (tax software makes this easy to do). While some deductible expenses, such as mortgage interest and property taxes, are out of your control, you do have a say in how much you contribute to charity. In 2012, the average taxpayer with adjusted gross income of between $50,000 and $100,000 deducted $2,990 in charitable contributions, according to IRS data (the average is only for taxpayers who were eligible to claim the deduction).
What to do: Create a folder for receipts and other records of your charitable gifts throughout the year, suggests Jackie Perlman, principal tax analyst for H&R Block’s Tax Institute. Don’t overlook donations made through payroll deduction. Your out-of-pocket costs for good deeds may be deductible, too. For example, ingredients you purchase to make a casserole for a nonprofit’s soup kitchen are deductible, so save those receipts. You can also deduct 14 cents per mile, plus parking and tolls, if you drive for charity, so keep a log of your trips.