While April 15th might sound like it’s still a ways off, it’s crucial that you start thinking about tax saving strategies now. Even more so this year, as there are a number of new taxes and increases to old ones. Regardless of your tax bracket, below are four strategies that can help you minimize your tax burden come April:
Boost retirement savings. Individuals 50 and older can contribute up to $23,000 in a 401(k), and self-employed taxpayers 50 and older can stow away $56,000 in a solo 401(k). It might also benefit you to convert traditional IRA money to a Roth IRA, but only if you’d rather reduce your required minimum distributions and have higher AGI and taxable income in later years.
Track medical expenses. This year taxpayers who are younger than 65 are only able to write off medical costs that exceed 10% of AGI, compared with 7.5% in the past. Taxpayers 65 and over still qualify for the 7.5% threshold. Also, the new health care law limits the amount you can contribute to flexible spending accounts in 2013 to $2,500. For couples still subject to the 7.5% threshold, make sure you keep your receipts in case you go over your FSA because you could be eligible for a deduction this year.
Investment maneuvers. Be aware of the new 3.8% surtax and how it applies to net investment income. You can also reduce your taxes by making your investments more tax efficient, such as utilizing index mutual funds because they generate a lot less in capital gains. Increasing the amount of municipal bonds in your taxable accounts may also minimize your tax burden as they are not subject to federal tax and are exempt from the 3.8% surtax.
Profit from good deeds. If you are 70 ½ and over, you can transfer up to $100,000 from an IRA directly to charity. While you won’t be able to deduct the contribution, it will lower your AGI compared with taking a taxable distribution and donating it to charity. In addition, donating appreciated stocks or mutual funds from a taxable account to charity helps you avoid the tax on the gain as well as the addition to AGI and taxable income would come from a sale.
For more strategies to help cut your tax bill, please visit Kiplinger.com.