With the end of the year quickly approaching, you are probably focused on finalizing travel plans and squeezing in last-minute holiday shopping. There’s a good chance that the last thing on your mind is tax planning. However, now is the time to consider strategies to reduce your tax burden come next April, especially given the recent tax law changes and the uncertain future of tax reform.
The 2013 tax year is sure to be tougher on many taxpayers for a variety of reasons, including:
- Higher marginal income tax rates
- Higher capital gains tax rates
- Restored phaseout of itemized deductions and exemptions
- New 3.8 percent Medicare tax on unearned income, including interest, dividends and capital gains
- New 0.9 percent additional Medicare tax on earned income in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly
Year-end tax planning starts with a projection of whether you will be in a higher or lower tax bracket next year. Then, there is one basic income tax question you need to ask: When it comes to outstanding income, deductions and credits, should I pay now or defer?
What does that mean? In general, if you expect your earnings to increase next year, accelerating income received this year will result in greater tax savings and deductions, and tax credits deferred until next year will be more valuable. If you expect your income to go down next year, you should use the opposite approach.
Let's assume your income is going up in 2014. To help you keep more of what you make next year, consider these 15 tax-saving strategies before it's too late. As always, you should consider consulting a qualified financial professional for advice tailored to your particular situation before taking action.