Oak Brook-based Certified Financial Planner™ Nancy Coutu of Money Managers Financial Group is here to offer five last-minute tax tips for your 2013 filing.
1. File by the April 15th deadline. The deadline to file your taxes is right around the corner: April 15th. You can submit an extension for your return, but remember that this just extends your deadline to file, not your deadline to pay. You still need to make any payments by the April 15th deadline or you could be subject to penalties. If you do decide to go this route, a good rule of thumb is to pay 110 percent of your tax liabilities from last year.
2. Have tax documents ready to go. You'll need a few different documents before you file, including your W-2 from your employer. There are different types of 1099 forms that you could need if you earned income while self-employed, earned interest on a bank account, had earnings from investments or sold any stocks, bonds or mutual funds. Make sure to keep all documents in a safe place even after you have filed. If you get audited, you need this paperwork to show the IRS.
3. Max out your IRA contributions. If you didn't contribute to your IRA or Roth IRA in 2013, or if you didn't contribute the maximum, it's not too late. You have until April 15th to do so. The maximum you can contribute is $5,500, with an extra $1,000 "catch-up provision" if you are 50 or older. If approaching retirement, one way to keep your taxable income down is to convert your traditional IRA to a Roth IRA. Though you will pay taxes on the conversion, you can convert over multiple years. Once the account is fully converted you won't have to pay taxes on distributions in the future.
4. Claim investment losses from previous years. If you experienced a significant loss in the value of your investments or other capital assets in previous years, you can use up to $3,000 in capital losses to offset other taxable income each year. You can do this year after year until that capital loss is completely claimed. Remember that short-term capital gains are taxed at higher rates than long-term, and some savings are taxed as ordinary income rather than capital gains. Be sure you know the difference in order to plan ahead and structure your accounts accordingly to keep your taxes down.
5. Maximize deductions. Don't forget to take any credits and deductions you qualify for, including child care credits, the interest paid on your mortgage or student loans as well as charitable contributions. Some deductions are expiring, so take note of those since this is the last year they could apply for you. Be thorough – you don't want to overlook any deductions that could have saved you money on your tax bill.
o Qualified charitable distributions by those age 70 1/2 or older from IRAs.
o An above-the-line deduction for qualified higher education tuition and fees.
o The option to deduct state and local sales and use taxes instead of state and local income taxes.
Final Thought: Once you are done filing your taxes this year, when the financial wound is still fresh, consider meeting with a qualified financial professional to develop a tax strategy to make sure you're as tax efficient as possible, including discovering ways to invest in tax-favored investments that could lower your tax bracket thereby lowering how much you owe in taxes.
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