The countdown to the holidays isn’t the only one to which you should pay attention. The April 15 tax-filing deadline is around the corner, and although preparing for when you fill out your tax form isn’t as much fun as opening presents, it will give you the peace of mind that you won’t find in any brightly colored package.
“Because there were so many changes in the tax rates and rules for 2013, taxpayers should be ahead of the curve this year,” says Karl L. Fava, who is the founder of Business Financial Consultants.
According to Tax Policy Center, 77 percent of consumers will pay more in taxes in 2013 because of the American Taxpayer Relief Act of 2012. With the end of the payroll-tax break, some of that already showed up in the form of a smaller paycheck, but experts say taxpayers also will see other changes come tax time.
Although several of these tips make sense in any year, tax professionals with whom we spoke say tax-law changes in 2013 make the following tips particularly relevant to minimize your bill or to maximize your refund.
Here’s what you should know to lock down your 2013 tax return:
1. ORGANIZE YOUR FILE. Tax time can be more expensive if you aren’t prepared. Many tax preparers charge by the hour, which can add up if you hand over a shoebox that’s filled with receipts instead of a file of organized records. It’s best to start organizing before year’s end, particularly because the bigger cost of disorganization typically is missed deductions and credits, says Tim Gagnon, who is an assistant academic specialist of accounting at Northeastern University’s D’Amore-McKim School of Business. He says you should sort receipts and bills by deductible expense to be sure that you’re including the biggest ones.
2. REDUCE TAXABLE INCOME. It might not be too late to curtail your tax obligations for 2013. You should consider beefing up your pretax 401(k) contributions, which reduces taxable income, Fava says. You can put up to $17,500 in a 401(k) for 2013 ($23,000 starting at age 50). For individual retirement accounts, you can put in money as late as April 15, 2014, and have it count for the 2013 tax year—just specify that when you contribute. The maximum IRA contribution for 2013 is $5,500 ($6,500 starting at age 50). Low-income savers—those who earn no more than $27,750 individually and $55,500 jointly—can get extra tax savings with the Savers Credit for retirement contributions, which is worth up to $1,000 and $2,000, respectively.
3. INVEST IN HEALTH. Consumers can seize a one-time tax opportunity in 2013 if they switch health-insurance plans under the Affordable Care Act to one of the new state-run health-insurance exchanges, says Ben Tobias, who is an independent accountant and financial planner. Some of the new high-deductible health-care plans include tax-deferred health savings accounts (HSA), which you can use for medical expenses. (Unlike flexible spending accounts, the funds that are in HSAs roll over year to year. The trade-off is that they typically are paired with plans that have high deductibles and high out-of-pocket costs.) Someone who switches into a new plan that has an HSA could contribute up to the maximum—$3,250 for individuals, $6,450 for families—before year’s end, he says. (Consumers age 55 and older can boost individual and family contributions by an extra $1,000.)