Eight Ways to Cut Your 2013 Taxes!

You may not consider autumn a “second spring,” as one famous philosopher did, but there’s no question that this time of year is a second season for tax planning.  Here are ideas to consider now that can lead to a lower federal income tax bill for 2013.

1.  Make a charitable contribution from your IRA.  If you’re 70 1/2 or older, a donation to a qualified charity made directly from your traditional IRA counts as a required minimum distribution.  The savings:  no penalty for failing to take your annual RMD and no increase in income.

2.  Increase retirement plan contributions.  Pre-tax contributions to plans such as a 401(k) lower your taxable income.  You may also qualify for a tax credit, which can reduce what you’ll owe on your 2013 return.

3.  Undo a Roth conversion.  You have until October 15 to change your mind about last year’s decision to convert your traditional IRA to a Roth.  One reason to consider re-characterizing:  an account balance that’s less than when you made the original conversion, due to changes in market value.

4.  Install energy-efficient improvements.  Upgrades to your home, such as windows, doors, and insulation, can qualify for a lifetime tax credit of as much as $500.  That’s a direct dollar-for-dollar reduction of tax liability.

If you’re looking into solar improvements such as water heaters or panels, you may be eligible for an additional credit of up to 30% of the cost.

5.  Look at itemized deductions.  The standard deduction for 2013 is $12,200 when you’re married filing jointly ($6,100 when you’re single).  If you’re close to the threshold, consider accelerating deductible expenses.  For example, you can add sales tax paid on a new vehicle to the IRS standard amount when claiming the itemized deduction for state and local sales tax.

6.  Keep side-business expenses tax-deductible.  One difference between a hobby and a business is the amount of the tax deduction.  Hobby losses are only deductible to the extent of the income from the hobby, and generally you have to itemize to benefit.  If you operate your business as a sideline to your main job, now’s the time to make sure you’ll meet the tests to claim deductions at year-end.

7.  Put equipment in service by year-end.  Buy, lease, or finance equipment before December 31 — and make sure you’re using it in your business — to take advantage of this year’s Section 179 and bonus depreciation rules.

For 2013, the maximum section 179 deduction is $500,000.  Bonus depreciation lets you write off up to 50% of the cost of assets.

8.  Hire your kids.  The familiar summertime tax tip works well in fall, too.  Some benefits:  a deduction for your business, income for your children that’s not subject to the kiddie tax, and the opportunity to establish a tax-deferred retirement account with the earnings.

Call us for more tax-saving ideas you can put in place before December 31.  (636) 946-2800


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