Fall is the ideal time to begin the year-end tax planning process. Start gathering income and deduction records now so you’ll know where you stand and what actions you might want to take to minimize your 2013 tax bill. (See the sidebar “Tax record checklist.”)
Depending on your circumstances, you may qualify for the following tax-reduction strategies:
Combining medical expenses. Qualified medical expenses are deductible only if they exceed an applicable floor. It’s easier to exceed this floor and deduct more expenses by bunching expenses into alternating years. For 2013, unreimbursed medical expenses are deductible only to the extent the annual total exceeds 10% of your adjusted gross income.
First calculate your year-to-date medical expenses. If they exceed or are close to the 10% floor, consider bunching additional expenses into 2013. This might include scheduling dental work and buying new contact lenses in December rather than waiting until January.
Making an IRA contribution. For 2013, you’re allowed to make an annual IRA contribution of $5,500 ($6,500 if you’re age 50 or older). Income-based limits may reduce or eliminate the amount of your traditional IRA contribution you can deduct or the amount you can contribute to a Roth IRA. But even nondeductible contributions to a traditional IRA may be worthwhile because the investment grows tax-deferred.
IRA contribution limits don’t carry over from year to year. If you don’t make the full contribution this year, you can’t contribute a larger amount next year to make up for it. So to maximize your tax-advantaged retirement savings, make your full 2013 IRA contributions by April 15, 2014.
Using your annual gift exclusion. Each year, you can gift up to the annual exclusion amount per recipient tax-free without using up any of your lifetime gift tax exemption. For 2013, the annual exclusion is generally $14,000 ($28,000 for married couples who split gifts).
Like IRA contribution limits, gift exclusions don’t carry over from year to year. If, for example, you forgo an annual exclusion gift to your son this year, you can’t add $14,000 to your 2014 exclusion to make a larger tax-free gift to him next year. To qualify for the exclusion, make your annual gift by Dec. 31, 2013.
Other tax-minimizing strategies may apply to your situation. To learn more, contact us at (305) 444-0999 before the end of the year.
Sidebar: Tax record checklist
Don’t wait until the last minute to organize your tax records. To ensure you’re ready to hand them over to your accountant at the beginning of the year, start gathering the following now:
- Bank account statements,
- Investment account statements, and
- Documents related to additional income (for example, compensation from consulting work, expenses from investment property and gambling winnings).
To support potential deductions and credits, collect:
- Credit card and other receipts,
- Mileage logs, and
- Canceled, imaged or substitute checks.