Last Minute Tax Saving Tips for 2013
Although the year is almost over, you still have time to take steps that can lower your 2013 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the IRS for you to consider:
1. Start a filing system. If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
2. Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.
Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see IRS Publication 526, Charitable Contributions.
If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013.
3. Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.
The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.
4. Take some last-minute tax deductions. Other deductions you can accelerate include an estimated state income tax bill due January 15, a property tax bill due early next year, or a doctor’s or hospital bill.
Make sure you'll be itemizing for 2013 rather than claiming the standard deduction. Unless the total of your qualifying expenses exceeds $6,100 if you are single, or $12,200 if you're married filing a joint return, itemizing would be a mistake.
If you're on the itemize-or-not borderline, your year-end strategy should focus on bunching. This is the practice of timing expenses to produce lean and fat years. In one year, you cram in as many deductible expenses as possible, using the tactics outlined above. The goal is to surpass the standard-deduction amount and claim a larger write-off.
In alternating years, you skimp on deductible expenses to hold them below the standard deduction amount because you get credit for the full standard deduction regardless of how much you actually spend. In the lean years, year-end planning stresses pushing as many deductible expenses as possible into the following year when they'll have more value.
5. Small Businesses - Shift expenses into 2013 – Plan your spending. Entrepreneurs typically benefit from minimizing taxes by lowering reportable annual profit. If expenses are due to hit early in 2014, and your business accounts on a cash basis (as many small businesses do), it might pay to incur the costs before the end of 2013. Keep in mind, however, that simply paying out cash rather than incurring a deductible expense – for example, by paying down debt rather than by purchasing office supplies – will not reduce taxes.
6. Small Businesses - Shift income into 2014 – Likewise, if you are accounting on a cash basis (as many small businesses do) and wish to reduce taxable income for 2013, consider billing your customers late or giving them an extra-long grace period for making payments, so that revenue that you otherwise would have received in 2013 arrives at your desk in 2014.
7. Consult a professional tax adviser – Rather than waiting until 2014 to discuss what taxes you might owe, speak to your accountant now so that he or she can advise you on what steps to take to minimize taxes before the year passes and it is too late.