- Estimate your taxes for 2014 – Use information that you now have available for 2013 taxes to see how much you might owe for the upcoming tax year. Some numbers will need to be estimated, but you probably have enough information to create somewhat accurate estimates. By doing this, you will have an idea of where you will stand in the following tax year and you have ample time to make any changes necessary.
- Shift expenses into 2013 – If you have expenses that can be incurred either late in 2013 or early in 2014, it might be wise to go ahead and incur the expenses before the end of the year assuming you file your taxes on a cash basis (if you do not know what method you use to file your taxes, it is probably cash). Keep in mind, however, that paying for certain items such as debt or a federal tax payment will not reduce your tax liability. The payment would have to be for a deductible expense.
- Shift income into 2014 – With income, it might be wise to do the opposite, that is, waiting until 2014 to bill clients that you are ready to bill right now. If you receive a $1,000 payment on December 31, you would be paying taxes on it immediately. By receiving it in January, you could defer the tax liability for a full year.
- Utilize retirement plans – 401(k) plans and other savings vehicles have two primary benefits. First off, they will help you save for retirement. But they can also help reduce taxes immediately. With certain saving vehicles, taxpayers can contribute and then deduct as much as $50,000 against taxable income. These plans can save against both taxable income and payroll taxes. If you’re in a lower tax bracket at this time, but plan on big things for the future, you might also consider changing from a traditional IRA to a Roth IRA. This way, the tax savings benefit will come into play in the future when your marginal tax rate is higher. Depending on the retirement-plan, you will either need to take action by the end of the calendar year, or by the time your tax return is due.
- Charitable donations – Donations to recognized charities can reduce your taxable income if you are itemizing deductions. Consider moving donations that you were planning on making in 2014 back to 2013 so that you can get the tax break immediately. Also, if you contribute securities to recognized charities, the capital gains tax can possibly be avoided. This can save you even more in taxes than if you contributed cash to charities.
If you want more expert advice on how to save money on your taxes, contact me and take advantage of Evan Hutcheson, CPA, LLC’s tax preparation services in Nashville, TN.
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