Start Tax Planning Early: 8 Great Year-End Tax Tips
When you think of the holiday season, what comes to mind? Gift exchanges? Holiday parties? Home-baked pies? Taxes?
I know you have a lot of other things to do this time of year, but the holiday season is a great time to make some last-minute tax moves before the year is over. Here are eight of my favorites:
1. Ask for a New Year’s Bonus Instead of a Christmas Bonus
By delaying your bonus by only a week, you can push the payment of taxes on the income 15 months into the future — a year from next April.
2. Clean Out Your Closets and Donate to Charity
You can clean out the old clothes, sporting goods, books, and other household goods that you no longer use and welcome the New Year with new space in your life, and get a quick tax deduction to boot. Document these donations by making a list of the items at the time you donate them. You can use TurboTax It’s Deductible to accurately value your donated goods.
3. Pay Donations by Credit Card
Payments made by credit card are deductible in the year they are charged, not the year they are paid, so you can donate to your favorite charity by December 31 and not pay the bill until next year.
4. Contribute the Maximum to Your 401(k) or 403(b) Retirement Plans
Some employers will allow you to catch up on contributions by increasing your deduction on your last paychecks of the year. If you are 50 or over, don’t forget that you can contribute an additional $5,500 “catch-up” contribution in addition to the regular 401(k) or 403(b) $17,500 limit for 2013.
5. Check the Balance in Your Flexible Spending Account
A wonderful fringe benefit, these helpful plans allow you to set aside a portion of your salary before taxes for certain purposes, such as child care or health care expenses.
These plans did work on the “use it or lose it” concept: any amount unused at the end of the year was lost, however the Treasury and IRS modified the rule and now employees may be allowed to carry over $500 of unused amounts for next year’s expenses. Your employer may also offer the existing plan option to use unused amounts for up to two and half months following year end.
6. Bunch your Medical Bills
Medical expenses are only deductible when they exceed 10% of your adjusted gross income (still 7.5% if you are over 65). If your income is low this year or your medical expenses are high, speed up your deductions accordingly. If you want to take the deductions this year, pay any outstanding medical bills before year-end, stock up on prescriptions, get new glasses, and pay your health insurance premiums before the end of the year.
7. Estimate Your Taxes
You can use TurboTax TaxCaster to estimate your taxes and see if you need to make any last minute tax moves. The IRS treats income taxes withheld from your paycheck as if they were paid in equal amounts throughout the year. So if your calculations show you’ll owe money, you can increase the withholding on your last paychecks of the year to make up the difference.
You can also try the new TurboTax MyTaxGuru to see what you can do to get a bigger tax refund when you file your taxes.
8. Don’t Forget to Gather Your Receipts
You can deduct union dues, legal and professional fees relating to tax and investment advice, and unreimbursed employee business expenses of mileage, equipment, education, and supplies, among other things. If you pay a lot of expenses for your job or your investments, gather up the receipts and cancelled checks so you can save more money when you file your 2013 taxes.