If you are a procrastinator when it comes to tax planning, you are still in luck. Saving money on your taxes is not too difficult if you happen to have good accounting practices and you keep current with changes to the tax code.
The Five Things
Here are five things that you can do now to reduce your taxes, particularly if you are close to a threshold for an additional tax or phase-out. Read my blog post Four Reasons for Tax Planning Before Filing Your 2013 Taxes to see some of the thresholds for 2013.
- Contribute to a traditional IRA
That’s right, even if you don’t have an IRA account, you can set one up now until April 15th and contribute up to $5,500 for you and your spouse, and $6,500 if you are over 50. You qualify for a deduction for your IRA contribution under the following circumstances:
- Your contribution cannot be more than your taxable income. If you are married filing jointly and you have no income of your own, you can still contribute to an IRA. Your contribution must be at or below your spouse’s income minus your spouse’s IRA contribution for the year.
- Your age is less than 70 1/2.
- If you qualify for a retirement plan at work, you get the full IRA deduction if your modified adjusted gross income is $60,000 or less for a single taxpayer, and is phased out at $70,000; The limits are $96,000 to $116,000 if both you and your spouse are covered under a retirement plan at work. If only one of you is covered, the limits are $178,000 to $188,000.
- If in box 13 of your W-2, the “Retirement Plan” box is checked, you are covered by a retirement plan at work.
- Contribute to a SEP
A SEP, or Simplified Employee Pension Plan, is a defined contribution plan where the contribution is coming from your employer. If you are self-employed , this may be a great option for you. The SEP contribution is a deduction for the business and reduces the amount of income that flows through to you, thereby lowering your taxes. The SEP contribution can be made up to the extended due date of your business return, or October 15th. The maximum contribution for 2013 is $51,000, or 25% of your self-employment income minus the SEP contribution.
- Undo Your 2013 Roth Conversion
If you converted any of your traditional IRA to a Roth IRA in 2013, this increases your income and your taxes. You have until your extended due date, or October 15th, to recharacterize your Roth conversion back into your traditional IRA and lower your income.
- Review Your Deductions
Sometimes taxpayers do not want to take the time or effort to track down and add up all of their deductions, and they end up paying more tax as a result. By taking a little more time to dig out your receipts and take these deductions, you can save some money. This year, if you are self-employed and work from home, you may consider the simplified home office deduction. See my upcoming post regarding this deduction.
- File and Pay Your Taxes On Time
If you have to file an extension on your tax return, you are still required to pay your balance due by April 15th. If you don’t pay, you will have added interest and failure-to-pay penalties added to your taxes. If you get an extension and still don’t file your return by October 15th, you’ll also be hit with a failure-to-pay penalty.
You still have some options for lowering your taxes for 2013. But if you want to have more options for improving your tax situation, don’t put off tax planning until late in the year or after the year is over. Make an appointment with your tax preparer for the spring and make a plan for 2014.