2013 Tax Planning and 2014 Tax Resolutions

 As you hustle and bustle at this time of the year and the stockings are hung by the chimney with care your thoughts are most likely not about taxes! However, it would be in your best interest to plan ahead and do some early tax planning. The earlier you begin your planning, the more opportunities you may have to save. Below are some tips to think about for the upcoming tax season.

 

1. Assess your current tax picture. Consider if any current personal or financial circumstance may impact your 2013 taxes.  Examples include changes in marital status, a birth or death in the family, helping a child pay for college and the effect of the American Taxpayer Relief Act. While ATRA prevented income tax increases for most taxpayers, taxpayers in higher income tax brackets will see an increase from 2013-2014. Please see Fiscal Cliff section below for more details.

2. Itemized deductions.  Financial and tax professionals continually look for ways for their clients to save on taxes. Big deduction items include home mortgage interest, charitable deductions and property taxes. But you don't benefit from itemized deductions unless your deductions exceed the standard deductions ($12,200 for married couples in 2013, increasing to $12,400 in 2014). If you are borderline, you should consider paying as much as you can in alternate years to be able to itemize, then reducing deductibles items in other years when you can take the standard deduction.

3. Deferring taxes on income.  Another key to effective tax planning is recognizing the importance of weighing the advantages and disadvantages of tax deferring strategies. Stocks have substantial gains this year; if you have any unused capital losses from prior years, you may want to consider taking some of those gains in 2013. If not, you will likely want to defer any sale decision until 2014. Many individuals participate in an employer-sponsored 401(k) plan or something in similar, which is a logical choice as the savings are not taxed. If you're not in an employer plan, you have until April 15 to contribute to an individual retirement account (IRA). Such a contribution to a traditional IRA will save 2013 taxes.