With the 2012 tax year recently put to rest, now is an ideal time to begin preparing for April 15, 2014. It’s never too early to get ready for next year’s taxes. By implementing a few strategies today, you can make the 2013 tax year less of a bother—and maybe even save yourself some money. Reduce Taxable Income Review your 401(k) or 403(b) retirement plans to ensure you are making the most of the contribution limits to your tax-deferred retirement accounts. This will reduce your taxable income, meaning you won’t pay taxes on what you save for the future. If you are over the age of 50, you may be able to take advantage of an additional $5,000 “catch-up” retirement plan contribution. See a tax advisor for additional information.
A traditional IRA is another way to reduce your taxable income and save for the future. With a traditional IRA, you get a tax deduction for the amount of savings you contribute to the account. For the 2013 tax year, IRA contributions are limited to $5,500 if you are age 49 or younger and $6,500 if you are age 50 or older. If you also make contributions to an employee-sponsored retirement plan such as a 401(k) or 403(b), your traditional IRA contributions may be fully deductible, partially deductible or not deductible at all. You can find all of the information you need about this from the IRS in its Publication 590 - Individual Retirement Accounts.
A concerted organizational effort will certainly make things easier the night before your tax return deadline. If you deduct mileage and travel expenses for business or medical reasons, keep a small notebook in your vehicle or in your travel bag to record these numbers. While you may be able to deduct medical expenses next year, you will need to keep track of those expenses either way.
It’s a good idea to buy a folder or a small accordion file to hold all of your potential tax deductions in 2013. If you plan to take deductions, you must have the documentation to support them and a separate “tax file” is a great way to stay organized.
Do you have an old car that you want to get rid of? Many local organizations will take that car off your hands and give you a valuable tax deduction for it. It’s a great way to support a worthy cause and lose that old clunker!
You will need to keep written records of all charitable deductions, including the name of the organization, the date and the value or amount of your contribution. Most organizations will provide donors with a written letter or receipt for each donation, and these go in your “tax file.”
Prepare for Affordable
Care Act Changes
Beginning in January 2014, every American will be required to have some form of health insurance. For taxpayers that don’t already have health insurance, they may qualify for help from the government, part of which is based on the 2012 tax year return information. If you do not buy health insurance by January 2014, you will face penalties of $95 or 1 percent of your household income, whichever is greater. The penalty amount will increase to $695 or 2.5 percent of household income in 2016. At the same time, writing off healthcare expenses other than insurance will become tougher.
Beginning with the 2013 tax year, only medical expenses in excess of 10 percent of your adjusted gross income can be deducted. A great resource for information about how the Affordable Care Act will affect you can be found at www.healthcare.gov.
While the 2013 tax year poses many challenges, preparation can help ease your burden. Time flies and before you know it, April 15, 2014 will be upon us. Start thinking about the 2013 tax year today—while the pressure is off— and you might be able to save yourself considerable headache and a few dollars.
This information is provided as a public service by the Independent Bankers Association of Texas (IBAT) and the IBAT Education Foundation. This article is not intended as legal advice with the understanding that the association is not engaged in rendering specific legal, accounting or other professional services. Each state has specific laws governing the creation and use of a power of attorney. If specific expert assistance is required, the services of a competent, professional person should be sought.