As the end of the year approaches, we are busy with holidays, family and travel, but this also is a good time to do some last-minute tax planning. With tax cuts expiring last year, taxes will go up for some people on their income and capital gains. In addition, several tax exemptions are being phased out.
If you are concerned with having to owe Uncle Sam this year, this month’s article series will cover 11th-hour tax tips you may find useful. Although tax planning rarely is fun, these strategies could help you keep more of your hard-earned money. As always, consult a tax professional for more information.
- Get Organized. Now is an excellent time of year to get your financial house in order. Gather cash receipts to help you calculate possible deductions and miscellaneous payments. Do you have a hobby or activity that generates income? If so, any losses might be eligible for deduction. Have you made home improvements? Charitable contributions? Vehicle expenses or miles driven for business? Get together all of your documentation early to make your life a little easier in April.
- Contribute To Your Work 401(k). Tax-deferred investing in retirement accounts is a smart choice because it allows your money to grow tax-free until you withdraw it. Maximize your 401(k) contributions, up to $17,500, or $23,000 if you will be age 50 or older in 2013.
- Contribute to Your Individual Retirement Account (IRA). You have until April 15, 2014, to make IRA contributions for 2013, but the sooner you get your money into the account, the sooner it has the potential to start growing tax-deferred. Making deductible contributions also reduces your taxable income for the year. You can contribute a maximum of $5,500 to a traditional or Roth IRA for 2013, plus an extra $1,000 if you are 50 or older.
- Check Your IRA Distributions. You are required to make minimum distributions from your traditional IRA by April 1 following the year in which you reach age 70-and-a-half. Failing to take out enough triggers a 50 percent excise tax on the amount you should have withdrawn based on your age, life expectancy and the amount in the account at the beginning of the year.
- Weigh the Benefits of Loss-Harvesting. In order to avoid paying capital gains taxes, many investors sell off investments such as stocks that have experienced losses in order to help offset any taxable gains have realized during the year. If you think that you may have a heavy capital gains burden this year, talk to your tax professional and financial representative about whether loss harvesting may be a good strategy for you.
- If you qualify, contact the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs for free tax help. VITA helps those who make $51,000 or less and need assistance in preparing their own tax returns. The TCE Program offers free tax help for all with priority assistance to people who are 60 years of age and older, specializing in questions about pensions and retirement issues unique to seniors.