Year-End Tax Planning: So Much to Do & So Little Time!
Is the looming year-end deadline leaving you feeling overwhelmed? Every year it seems as if there is too much to do: finding the perfect gift, baking scrumptious holiday goodies, and planning and attending numerous events and parties. Oh, and don’t forget the ever-ominous end of the tax year. Don’t we always seem to wait until the very last possible minute—like a professional procrastinator—to think about our personal and business taxes? Then, what is a person to do?
Although the year is nearly over, you still have time to take steps that may help you lower your 2013 taxes. Even the IRS promotes these tips! The following ideas can help you save both time and tax dollars, as well as helping you save for retirement.
Start a Filing System
If you don’t have a filing system for your tax records, it’s never too late to start one. It can be as simple as saving receipts in a shoebox (though your accountant may shudder when you show up), or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year…saving you precious time and stress.
Make Charitable Contributions
Tis the season of giving! Think of your favorite charities and non-profit organizations. If you plan to give to charity, consider donating before the year ends. When you do so, you can claim your contribution as an itemized deduction for your 2013 taxes. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. (A caveat to this is if you are a business and use a basis of accounting other than cash. In this case, consult with your accountant.) Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.
Don’t forget to save your receipts in that handy-dandy filing system you created. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.
If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013. See Publication 590, Individual Retirement Arrangements (IRAs), for more information.
Contribute to Retirement Accounts
You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.
The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000; $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.
Want more detailed information from the IRS? Check out the following sites:
- Tax Topic 305—Recordkeeping
- Exempt Organizations Select Check tool
- Publication 526, Charitable Contributions
- Publication 590, Individual Retirement Arrangements (IRAs)
- 401(k) Plans
- Tax Topic 610—Retirement Savings Contributions Credit
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