Tips to Get Your Taxes in Order Now, So You Can Relax in April

Alamy The year in its final quarter (and when did happen?), but you still have a couple of months to adjust your financial picture for 2014. Right now is actually an excellent time to get your tax planning in order, so that you can keep yourself out of trouble with the Internal Revenue Service when you file next April. The ideal situation would be for you to finish each year having paid exactly what you owe in taxes via timely estimated payments or withholding. By avoiding a huge refund, you keep your money in your control instead of giving Uncle Sam an interest-free loan. By not having to write a huge check in April, you protect yourself both from having to come up with the money to write that check, and from potential underpayment penalties. Tax Planning for People Without a Crystal Ball Of course, the odds are pretty good that you won't really know your total financial picture for 2014 down to the penny until the year is completely over. In fact, if you use some financial tools, such as a Traditional IRA, you can reduce your taxable income for 2014 by several thousand dollars, even after the calendar turns to 2015. Fortunately, the IRS realizes that it's nearly impossible to get your taxes squared away perfectly in advance. You do have until April 15, 2015, to get it right for 2014, and as long as you get your tax picture close enough with the time you've got left in 2014, the IRS won't penalize you, even if you do ultimately owe it money. The IRS uses a series of "safe harbor" tests to help determine if the taxes you pay throughout the year are close enough to what you ultimately owe to protect you from getting penalized for underpaying. As long as you meet any of the tests for the year through timely estimated payments or withholdings, you won't owe a penalty when you file and pay your 2014 taxes by April 15, 2015. The key tests: If you owe less than $1,000. If you've paid at least 90 percent of your taxes for 2014 (or 66 2/3 percent if you're a farmer or fisherman). If you've paid at least as much for 2014 as 100 percent of your taxes for 2013 (110 percent if your 2013 adjusted gross income was $150,000 or higher -- $75,000 if your 2014 filing status is married filing separately) Get Covered