Take Advantage of Remaining Opportunities
Before it’s Too Late
Now is the time to begin pulling together deductible expenses for your 2013 taxes. If you wait until tax filing season begins in 2014 to look for ways to maximize tax deductions, it will (with few exceptions) be too late to incur new tax-deductible expenses for your 2013 return. So now is a critical time to consider strategic end-of-year tax moves that can increase your deductions and lower your bill to the IRS.
Not Sure Whether to Itemize? Try “Bunching”
To maximize your tax deductions for one year, try “bunching” your expenses to make sure you exceed deduction floors. Remember, you itemize your tax deductions only when they total more than the standard deduction ($12,200 on a joint return; $6,100 on a single individual return for 2013).
For example, if you’ll itemize this year but think you may not next year, speed up all possible deductible expenses to before year-end. By contrast, if you won’t itemize this year but might next year, then delay such expenditures until after year-end.
Don’t Forget the Often Overlooked Medical Deduction
Medical expenses are deductible when they exceed 7.5% of adjusted gross income. So if you think you may meet that threshold this year, now is the time to get prescriptions refilled, buy any medical equipment you need, and make any doctor’s appointments or get any treatment or therapy you’ve been putting off.
On the other hand, if you’re pretty sure you won’t meet the 7.5% requirement for taking the deduction, then you might as well put off any medical expenses you can until 2014, when bunching might pay off. (You never know which year will be the one in which a major accident or illness takes a heavy financial toll on you.)
Make New Purchases for Your Business
If you own a small business, now is the time to consider buying things you now or will soon need. By purchasing in late 2013, you’ll get the write-off on your 2013 taxes.
Make Charitable Contributions
Many people give to charity on a monthly basis. However, by pushing back contributions planned for early 2014 to late 2013, you can gain an additional tax benefit in 2013. Giving in January requires you to wait until you file your taxes the following year before you see any tax benefit.
Better yet, instead of cash, consider giving assets, such as shares of a stock that have appreciated in value since your original purchase. By giving an appreciated asset, you avoid having to pay any taxes on the sale while still getting a charitable deduction based on the asset’s full market value to the charity.
Caution: The IRS is enforcing more rigorous standards for claiming charitable deductions than in years past. If you cannot provide documentation from the charity acknowledging receipt of your gift as well as proof of payment (i.e., confirmation from your bank account records), the IRS will frown upon your attempts to be charitable. It may deny your legitimate deduction and perhaps even impose penalties on you for being an undocumented philanthropist.
Pay State Income and Property Taxes Before Year’s End
Many people wait until April 15 to pay their state income taxes, since that’s when they file their state tax returns. However, if you pay your state income taxes in 2014, you can’t claim the deduction for those taxes until you file your 2014 income tax return. By paying at least some of what you expect to owe in state taxes now, you get a deduction for those taxes paid in 2013.
Make an Early Mortgage Payment
Make your January mortgage payment in December. This can allow you to claim a bigger mortgage-interest deduction for 2013.
Subscribe/Renew Subscriptions to Publications
Your Independent Living subscription may be tax-deductible as a business expense if you’re self-employed. Or potentially as an investing expense if you itemize. So by renewing now or ordering new special reports, manuals, or other products, you may be able to book the tax savings for 2013. Just call our office at: 877-371-1807.
Investing-related expenses are the sorts of deductions that are often overlooked. Of course, what constitutes a deductible investment or business expense isn’t always clear-cut. And since every person’s tax situation is unique, do heed the advice of your own tax advisor as to whether you’ll be able to deduct your Independent Living subscription (not everyone will).