Late-year tax moves take some of the bite out of tax time
The year is fast drawing to a close, but the Internal Revenue Service wants taxpayers to know that they still have time to take action for the 2013 tax year. The IRS offers eight year-end tax moves and three additional tips that will help make things a bit easier come tax return filing season early next year.
“It’s not too late to act on some opportunities to legitimately reduce your taxes,” said Jennifer Jenkins, IRS spokesperson for Ohio. “Even just a little bit of tax planning now can save you time and money later.”
Contribute to Retirement Savings. Most people have until year’s end to add to their 401(k) retirement plans, and until April 15 to contribute to traditional or Roth IRAs. “Workers with incomes up to $59,000 may qualify for the Saver’s Tax Credit – worth up to $2,000 – if contributions are made by Dec. 31,” Jenkins said. Visit IRS.gov for details on retirement plan contribution limits and the Saver’s Credit.
Contribute to Charitable Causes. For many, the holiday season is the season of giving. “Donations – cash or non-cash – made to qualified tax-exempt organizations by Dec. 31 may be deductible when you do your taxes in 2014. Make sure the charity you’re supporting is recognized by the IRS as tax-exempt or your contribution will not be deductible,” Jenkins said. Visit IRS.gov for details on charitable donations.
Give Someone a Gift. “Cash and non-cash gifts made to individuals do not qualify as charitable tax deductions, but you can gift up to $14,000 — or $28,000 if you’re married and file a joint return — to your children, grandchildren, or others by Dec. 31 and avoid having to file a gift-tax return in 2014,” Jenkins said. Visit IRS.gov for details on the gift-tax exclusion.
Go Green. Certain improvements that promote home energy efficiency may qualify for tax savings. Not all home improvements qualify, and payment for work done must be made by Dec. 31 to claim the tax credit on tax returns filed in 2014. “The Nonbusiness Energy Property Credit is for homeowners installing energy efficient improvements like insulation, new windows or furnaces. The 2013 credit rate is 10 percent of the cost of qualified energy efficiency improvements. That credit has a lifetime limit of $500. The Residential Energy Efficient Property Credit is for alternative energy equipment. It’s 30 percent of the amount spent on qualifying property, like solar electric systems and solar hot water heaters,” Jenkins said. Visit IRS.gov for details on energy-efficient home improvement tax credits.
Take Your Minimum Distribution. Taxpayers age 70 1/2 years and older who have retirement accounts will want to take their required minimum distribution by Dec. 31. “If you don’t take your RMD by year’s end, you risk a tax penalty of 50 percent of the amount you should have withdrawn,” Jenkins said. Visit IRS.gov for details on RMDs.
Flex It Out. Although IRS rules were recently revised, some Flexible Spending and Health Savings Accounts (FSAs and HSAs) may still be use-it-or-lose-it for 2013. “Unless your FSA or HSA allows you to carry funds over into 2014, now is the time to make those qualified purchases. Check with your plan administrators to see if you’re in the use-or-lose category,” Jenkins said. Visit IRS.gov for details on FSAs and HSAs.
Buy Classroom Supplies. Many education professionals who work with K-12 students use some of their own money to buy educational material for their students and/or classrooms. “Educators should know that when they file their taxes in 2014, they can deduct up to $250 – or up to $500 for married educators filing jointly – of non-reimbursed expenses they paid by Dec. 31 for books, supplies, computer and other equipment, and supplementary materials that they use in the classroom,” Jenkins said. Visit IRS.gov for details on the educator expense deduction.
Hire a Veteran. Employers who hire certain veterans by year’s end may qualify for the Work Opportunity Tax Credit. “This credit can be worth up to $9,600 per veteran hired,” Jenkins said. “The credit amount varies based on factors that include the hired veteran’s length of employment, the number of hours the hired veteran has worked and the wages paid to the hired veteran during his/her first year of employment.” Visit IRS.gov for details on WOTC.
Get Organized. Taxpayers who itemize deductions or claim tax credits should be able to show they qualify for the tax breaks that they claim. Bank and credit card statements, mileage logs, phone bills and other paper and electronic records may document payments that lead to tax savings. “If you haven’t already created a filing system for your important tax documents, it’s never too late to start one,” said Jenkins. “For the average person, a shoebox or indexing folders will work. Keep the documents you’ll need to help you prepare your tax return.” Visit IRS.gov for details on recordkeeping.
Safeguard From Audit. Each year, a number of tax returns are randomly selected for audit. “There’s no sure-fire way to avoid an audit for the return you file in 2014, but there are things you can do to guard against a negative audit outcome,” Jenkins said. “Report all your taxable income. Claim only those tax credits and deductions that you’re eligible to claim. Have proper documentation for tax credits and deductions that you claim. Last but not least, use e-file to help reduce the likelihood of math errors and unintentional missing data.” Visit IRS.gov for details on tax credits and deductions and e-file.
Adjust Your Withholding. “It’s a bit late in the game for 2013, but adjusting your payroll tax withholding can help get things off to a good start in 2014,” Jenkins said. “Are you having too much or too little withheld in payroll taxes? Having too much withheld results in a tax refund; having too little withheld results in taxes due. Last year, most taxpayers received a refund, with the average refund just under $3,000. To get that money back, you have to wait until you can file your tax return and then wait for your refund. If you’ve had too little withheld, you may be hit with an underpayment penalty.” Visit IRS.gov to access the Withholding Calculator and for details on payroll tax withholding.
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