As the end of 2013 is quickly approaching, there are several ways to help reduce your taxes before the year-end. I don’t know about you, but I don’t like paying more taxes than I have to. Think about these tips, and ask your CPA or tax professional before the end of year what they think about implementing any of these ideas:
1. Roth contribution – Not so much saving on taxes now, but by saving money into a Roth IRA, (preferable in a low tax bracket) with after tax money which means since you have already paid taxes on the money it will grow tax free and come out tax free in retirement.
2. Roth conversion – Same idea above except if you are in a higher tax bracket and aren’t allowed to contribute to a Roth, or if you have IRA money and you are in a low tax bracket a Roth conversion is a great way to pay taxes now and get tax free withdrawals/growth in retirement. For example if you are normally in a high tax bracket but you had a lower income year, converting an IRA to Roth could be a great move.
3. Realize losses – In a taxable account, (non-retirement account) you can realize losses up to $3,000 each year as an above the line deduction to your gross income. You must realize losses before 2013, and in order to realize a loss, you cannot sell and buy back the same/similar position within 30 days before or after the sale.
4. Max out your company retirement plan – You still have time to adjust your 401k contribution to contribute as much as possible to your employer plan; this will not only lower your taxable income, but it will lead to tax-deferred savings. This can work well for high earners.
5. Adjust your Withholdings via your W4 – By now you should know what your pay looks like for 2013. You can submit a new W4 to your employer if you are projected to over withhold on your taxes. By having less withheld on your paycheck, you can get more income now, instead of getting a refund later when you file your taxes. It also may be a good time to calculate your 2014 withholdings.
There you have it, 5 simple strategies to help save on taxes.
Please Note: All these strategies should be discussed with your CPA , tax professional or financial advisor. This is not advice to do any of the above without speaking to a professional regarding your specific situation.