Though the clock is ticking on ways to minimize your 2013 taxes, there are still a few steps you can take before January to help protect more of what you’ve earned. Here are seven strategies to consider:
1. Contribute the maximum to your 401(k). Up to applicable limits, contributions are subtracted from your gross pay, so you won’t pay current income taxes on the contributions (although Social Security and Medicare taxes still apply). In addition, earnings and gains grow tax deferred until withdrawal.
2. Replace loans that generate personal interest with a mortgage or home-equity loan. Personal interest cannot be deducted on your tax return, while mortgage and home-equity loan interest typically can — as long as the first mortgage doesn’t exceed $1,000,000 and the home-equity loan doesn’t exceed $100,000.
3. Don’t overlook gifts to family. You can make gifts of income-producing assets up to $14,000 per year ($28,000 if you split the gift with your spouse) to your children tax-free (unchanged from 2013). Doing so shifts the income from the assets to your children, who may be in a lower tax bracket. But be aware that “Kiddie Tax” rules may apply in certain circumstances
4. Take advantage of education tax breaks. If eligible, make sure to document and claim the tuition deduction, the American Opportunity Tax Credit or the Lifetime Learning Credit. You may also be able to deduct interest paid on student loans if you meet eligibility requirements.
5. Save receipts for household goods donated to charity. Keep in mind that no deduction is allowed for used clothing and household items (furniture, electronics, appliances and linens) that are not in "good condition or better." A favorable exception to this rule allows write-offs for single items if they are appraised at more than $500.
6. Keep track of your job-hunting expenses. Items like résumé preparation, driving mileage, airfare and hotels may be deducted as a miscellaneous itemized deduction. If you relocate for a new job, you may be able to deduct your moving expenses, too.
7. Start planning now for 2014. This gives you time to consider various tax planning strategies and ensure that you have enough time to implement them for the coming year — and won’t be scrambling to read articles like these next December.
Ask your tax advisor if any of these seven steps might be right for you, or give the Florham Park CPAs at Magone & Company a call at (973) 301-2300.
About Nick Magone: Nick Magone is managing partner at NJ CPA firm Magone & Company, which supports leading entrepreneurial companies, technology start-ups, non-profit organizations, professional services firms and the real estate industry with a complete range of accounting, audit & attestation, tax, wealth management, and business consulting services. Reach him at (973) 301-2300 or nmagone@MagoneCPAs.com.