With less than two months to go
before the end of the year, now is the time for some quick maneuvers so your
tax return doesn’t make you sick early next year.
There are major changes this year for
individuals with adjustable gross incomes over $200,000 and married couples at
over $250,000. And for couples over $450,000 and individuals over $400,000,
there’s a higher tax rate: 39.6 percent.
Throw in the new 3.8 percent surtax on
investments for high earners, and possibly another 0.9 percent change, and the
total tax liability can go to 44.3 percent. Further, capital-gains and dividend
taxes for high-income people can go to 20 percent.
Being attentive now is especially important
if you are affluent. But it pays for everyone to use tax-cutting strategies.
Here are some things taxpayers can do right now to get ready for what’s ahead
and possibly save money:
Get organized. Start gathering receipts and
other items needed to support your 2013 returns. Day care receipts, health
expenses and pay stubs all act as supporting documents for your returns.
Review the past. Sit with your old tax
returns and current pay stubs and do an estimated tax return for 2013. If you
can’t do it yourself, spend about $50 to have a professional do it for you. The
objective is to get an early idea of your tax liability so you can make proper
Clean the closets. If you use deductions, a
simple tax-saving step is to clean the closets and give items to charity. Just
make sure you get signed paperwork that lists each item and its value. But be
warned: A few $25 donations and a couple of Goodwill receipts are probably not
going to help you much.
Pay for college. If your child or you are in
college or technical training, you may be able to get up to a $2,500 American
Opportunity Tax Credit. Income cutoffs for the maximum are $160,000 for couples
and $80,000 for singles. So if you are within those thresholds and haven’t paid
enough for college to qualify for the max this year, pay bills now to boost
Spend money to save money. If you are just
above an income cutoff for a juicy credit like the college credit, child tax
credit or dependent care credit, don’t let those money-savers get away from
you. An easy way to whittle a good chunk of income is to put more money into a
401(k), 403(b) or other retirement savings plan at work.
Increasing your 401(k) payments in these next
few months requires you to pay pretax money, but it lowers your adjusted gross
income, or AGI. The lower your AGI, the less you owe the government. The
maximum you can contribute to a 401(k) this year is $17,500 if you are under
50, $23,000 if you’re over 50.
Go to the doctor. One unpleasant surprise for
people with a lot of medical bills this year is a change that makes it tougher
to claim a deduction. Previously, you could get a deduction when your medical
expenses totaled more than 7.5 percent of your adjusted gross income. But now
that’s up to 10 percent unless you or your spouse is 65 or older. You might be
able to get over the 10 percent threshold by seeking dental care, vision care
or medicine now that you might have otherwise delayed. Just realize you can
only claim the amount over the hurdle.
A hodgepodge of fees. Whether you pay a tax
preparer or run up expenses for your job that aren’t reimbursed by your
employer, you might be able to get a deduction. Items like unreimbursed travel
for work, depreciation on a computer, union or professional dues, lawyer fees and
others fall within “miscellaneous” deductions. But they have to total at least
2 percent of your adjustable gross income.
Rush a state tax bill. If you have a state
income tax bill to pay early in January, you can pay it in 2013 and increase
your itemized deduction total for this year. Think ahead, however. If you will
need the deduction in 2014, you might not want to rush to take it this year.
And if you might be subject to the alternative minimum tax this year, you will
waste the benefit of paying higher state taxes now.
Give to charity. Seniors can give directly to
charity from their individual retirement account and, depending on the amount,
can cut the requirement to take distributions and pay taxes on them. At the end
of 2013, this benefit disappears. For anyone, a good way to give is to donate
stocks, bonds, mutual funds or other assets worth a lot more now than when they
were bought. For people worried that their holdings have soared too far too
fast, giving shares to charity allows a valuable donation, and you don’t have
to sell the asset and pay capital gains taxes.
Sell losers. If you have capital gains on
assets that you sold in 2013, you can cut your tax burden. Sell an asset that’s
lost money. Any loss you have on those will offset other gains. And if you have
more than a $3,000 loss, you can carry the extra over to offset gains in the
Know the law and act accordingly. It helps to
be aware of tax law changes in any given year. Two new taxes to help finance
the 2010 health care law — a 3.8 percent surtax on investment income and 0.9
percent added levy on wages — will apply to income of more than $250,000 a year
for married couples and $200,000 for individuals.
In addition, the forgiveness debt on home
foreclosures, sales tax deduction, private mortgage insurance deduction,
classroom supplies deduction, tuition and fees deduction, and residential
energy tax credit are good only for 2013. Taking action in these areas before
the end of the year will put you in a position to take those deductions.
Consider the power of three. There is nothing
wrong with doing your own taxes, Brodie said, but every three years it’s a good
idea to have a professional complete or review your work. That way, if you
missed something, you will still have time to file an amended return.
Author:Go 2 Girls Realty Phone: 469-443-6537 Dated: December 12th 2013 Views: 1,446 About Go 2 Girls: Whether you are looking to find the perfect home, or buying and selling real estate to build your pr...
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