Decisions you make between now and Dec. 31 will directly affect what you pay on your income taxes on April 15. Here are six ideas to trim your taxes.
- Make those charitable deductions by Dec. 31. To the United Way, to your college, your child's college or school, the local Humane Society, your church or synagogue, the local non-profit theatre company. Basically, any group that qualifies as a 501 (c)(3) organization. You can contribute cash. You can also contribute stock, mutual funds or other securities that you've held for more than a year.
- Fund your retirement plan and, if you're a business owner, overfund your company's pension plans. If you have a 401(k) plan, try to max out your contributions. That reduces adjusted gross income. The 2013 limit is $17,500. If you're 50 or older, you can add an additional $5,000. A business owner should look at making contributions to Keogh, SEP-IRAs, IRAs and the like. (For more, check this Internal Revenue Service release. Yes, sometimes the government IS here to help.)
- Defer income. Got a big bonus coming? Tell your company to defer the payment until next year so it's not 2013 income. If you're self-employed, send out invoices on Jan. 1. Have a big stock gain? Don't sell and defer the gain until next year.
- Pay next month's mortgage and 2014 property taxes now. Mortgage interest is deductible. Make your January payment on Dec. 31, and that month's interest is deductible. Pay your property taxes for 2014 on Dec. 31.
- Buy that new equipment. Are you expecting to add a new machine to your factory, put a new printer or buy a new dental or medical equipment? Buy it before Dec. 31, and you may be able to take advantage of the bonus depreciation and section 179 deductions available in 2013.
- Don't forget the AMT. This alternative -- and dreaded -- method of computing an income-tax bill is supposed to ensure everyone pays some tax. In New York, Connecticut and other high-tax states, too many deductions can trigger the AMT. Go through your income and expenses to see if these could trigger the AMT. You may want to push some deductions into 2014.
One last tip. Start thinking about your 2014 tax bill. Your income tax return for 2013 offers a guide to what your 2014 taxes may look like. Planning now can keep your taxes under control. Here's what we mean. If you need surgery and expect big-out-pocket expenses, maybe wait until next year. You can only deduct the expenses that exceed 10 percent of adjusted gross income.
On behalf of our team we wish you health and happiness this holiday season!