Here are some tips for planning last minute tax savings for individual tax payers.
As always there are ways to tweak your 2013 tax bill, but not very much time left to do so. Before making any decisions please see my last Wag the Dog blog and keep those items in mind. The two biggest ways to adjust your taxes for 2013 are to increase your deductions before the end of the year or to decrease your income.
You can increase your deductions by doing things like making additional charitable contributions, paying your health insurance premiums in December instead of January, paying your January mortgage payment in December, paying your 2014 property taxes in 2013 instead of 2014, making a contribution to a traditional IRA before the end of the year or balance that stock portfolio and reap the losses you would take after the first of the year now.
You can decrease your income by increasing the contributions to your 401(k) or other employer sponsored retirement plan before the end of the year, making a contribution to a Health Savings Account, joining or increasing your cafeteria plan contribution, getting your boss to push that bonus or pay raise into 2014, or hold off on balancing that stock portfolio until after the first of the year if you look to make some gains.
There are new taxes that took effect 1 Jan 2013 that may make this a good deal for you. The top tax rate jumped to 39.6%, there are increases on Medicare tax of .9% for upper level income and the increase of 3.8% for types of investment income. The tax rates on capital gains have also gone up this year and the exclusion of the personal exemptions for upper income ranges has been reinstated.
There are also a number of useful deductions that will be expiring, unless extended by Congress, at the end of 2013. The optional state and local sales taxes on the Schedule A, the threshold for medical expenses rises to 10% of AGI from 7.5% for taxpayers under 65, the teachers above the line $250 deduction for classroom expenditures, and the rule allowing the exclusion on canceled debt from a qualified principal residence are a few of these.
As you can see there are lots of things to take into consideration when planning your end of year tax situation. Now is a great time to call your tax professional and schedule a sit down to do that as well as get things in line for next year.
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