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15 Tax-Saving Steps to Take Now Comments

  • By Jocelyn Black Hodes, DailyWorth’s Resident Financial Advisor
  • November 05, 2013

Complete Roth conversions. Converting funds in a traditional IRA to a Roth IRA in a year before your tax bracket is expected to increase can offer significant income tax savings. Plus, you can benefit from tax-free withdrawals and no RMDs later in life with a Roth. Use this calculator to see if a Roth IRA conversion makes sense for you. 

Accelerate loan payments.  In addition to potentially lowering your tax bracket for 2013 by being able to deduct more interest, paying extra towards your mortgage debt can help you maximize the current deduction on mortgage insurance premiums before it expires at the end of this year.

Save itemized deductions for later. If you expect your income to go up in 2014, taking the standard deduction this year and deferring payments on expenses that qualify for itemized deductions to next year (such as charitable contributions) would offer greater tax savings. Click here to learn more about deduction options and use this calculator to help determine which deduction strategy is right for you. 

Put that facelift on hold. For medical expense deductions, the adjusted gross income (AGI) minimum rises to 10 percent in 2013 for those under age 65. Those over age 65 still have an AGI minimum of 7.5 percent.  If you are 64 this year and turning 65 next year, you might want to postpone elective medical procedures until next year to maximize tax savings. (Note: You can only deduct the portion of your medical expenses that exceeds 7.5 or 10 percent.) 

Watch out for AMT. Overlooking the alternative minimum tax can make certain year-end strategies counterproductive. For example, you shouldn't prepay state and local income taxes or property taxes if you might be subject to the AMT because it could save you nothing (and cost you in potential earned interest). A qualified financial professional can help you determine which strategies are most suitable and avoid unpleasant and costly surprises next year. Use this calculator to see if you might be affected by AMT. 

Invest in your business now. Buying supplies for your business before the end of this year could help you take advantage of the generous current Section 179 deductions and 50 percent bonus depreciation. These tax breaks may not last past 2013, or they might be cut back significantly next year.

Increase your withholding. If you have fallen behind on quarterly tax estimates or are not sure you have withheld enough income so far this year, it might be a good idea to increase your withholding on remaining wages to avoid underpayment penalties.

Hold off investing in mutual funds until next year.  Many mutual funds pay accumulated dividends and capital gains in November and December. If you invest in a mutual fund too late this year, you could end up with an unpleasant surprise in the form of a tax bill next year.

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