Jeanette Showalter, CFA for Florida Weekly writes: Many think that tax planning for 2013 is not a possibility since the new year has begun. But that is far from the truth. Much work needs to be done in 2014 for accurate filing for 2013. Also, there are several tax-saving strategies that can be implemented in 2014 that will apply to 2013.
Retirement accounts
If you haven’t already funded your retirement account for 2013, do so by April 15. (A Keogh or a SEP or an individual 401(k) allow filing extensions to Oct. 15, 2014.) The deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA is April 15, 2014. (For purposes of getting investment dollars to work sooner than later, you should not wait until the last day to legally fund; rather consider making 2014’s contribution as soon as possible in 2014.)
To qualify for the full annual IRA deduction in 2013, you must either: not be eligible to participate in a company retirement plan, or if you are eligible, you must have adjusted gross income of $59,000 or less for singles, or $95,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully deductible as long asa your combined gross income does not eI exceed $178,000. For 2013, the maximum IRA contribution you can make is $5,500 ($( 6,500 if you are age 50 or older by the es end of the year). For self-employed persons, the maximum annual addition to SEPsS and Keoghs for 2013 is $51,000.
Remember, Roth contributions are not deductible, but all withdrawals from a Roth can be tax-free in retirement while withdrawals from a traditional IRA are fully taxable in retirement. In order to contribute to a Roth, your income as a single or married must be under certain threshold levels. (The tax-free status for Roth withdrawals is under current tax law — as there have been rumblings that the tax-free aspect should be rescinded for the very wealthy — so be aware. Roths might not remain sacrosanct.)
For those newly self-employed who have not started a retirement plan, they can avail themselves of Keough and SEP plans for which contributions made in 2014 could apply to 2013. But to get a real bang for the buck, the self-employed need to consider the individual 401(k), which allows a very large amount of money to be put into a retirement plan and offers even larger amounts to those who are older and are in a catch-up mode.
Estimated payments
Second, make sure to make your estimated payments. According to IRS rules, you must pay 100 percent of last year’s tax liability or 90 percent of this year’s tax or you will owe an underpayment penalty. If your adjusted gross income for 2012 was more than $150,000, you have to pay more than 110 percent of your 2012 tax liability to be protected from a 2013 underpayment penalty. If you make an estimated payment by Jan. 15, though, you can erase any penalty for the fourth quarter, but you still will owe a penalty for earlier quarters if you did not send in any estimated payments back then. (Check with an accountant about circumstances in which a windfall was received after Aug. 31, 2013.)
Gather your papers
Start to collect all the information that you will need to file your taxes. For some that means tabulating medical expenses, donations, sales tax paid on purchases throughout the year, etc.
Figure out the home office
Consider taking a home office dedication if it applies. It has merits, but the downside is that it is often an IRS review trigger. It is a decision that you should make with a tax accountant’s counsel.
Account for the kids
Make sure you claim your child as a dependent and make sure that if you are divorced that only one parent is claiming the same child. There is a “personal exemption of $3,900 for each dependent and the $1,000 child tax credit for each child younger than 17. The $1,000 child tax credit begins to phase out at $110,000 for married couples filing jointly and at $75,000 for heads of households. If there is a newly born child, make sure you get him or her a Social Security number.
Consult with the pros
Consider getting professional help sooner rather than later. Also, if your tax liability is large and complex, consider consulting with several tax professionals. Personal experience is that tax professionals with exactly the same information will make differing recommendations as to how the tax is to be reported and during what period. This might suggest that some are wrong and others are right. However, it also suggests that the tax code is sufficiently complex, and within complexities there is sometimes room for differing interpretations or approaches. And for those still in the Christmas spirit of giving, consider making a gift of a tax professional’s time to family members or others; it might set them on a better path for their financial security and retirement planning.
This is not meant to be an exhaustive list of tax planning tasks, but rather to put tax planning on your radar screen as early as possible in 2014 and offer suggestions for minimizing taxes for historical 2013 and prospective 2014.
You should consult with a tax expert as to specifics that apply to you and interpretations of an ever-changing and complex tax code. ¦
— Jeannette Showalter, CFA is a commodities broker with Worldwide Futures Systems. Find her on Facebook at Jeannette Showalter, CFA.
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