Too soon to be thinking about income taxes? Not if you want to reduce your 2013 tax obligation. Waiting too long can rob you of the opportunity to use strategies, such as those below, that may help lower your bill
Pay Me Later
Do you expect to have less income in 2014? If your employer is willing and you can wait for the money, consider delaying taxable income, such as a year-end bonus or sales commission, until after the end of the year. In addition to delaying taxes, waiting to receive income may allow you to retain tax breaks that are reduced or eliminated at higher income levels. It can also keep you from moving into a higher tax bracket in 2013.
Support Your Favorites
You can increase your itemized deduction for charitable contributions if you make donations to your favorite charities by December 31. By donating with a credit card, you’ll be entitled to the deduction on your 2013 income-tax return, even though you won’t receive the bill until 2014. (Deduction limits apply.)
Consider increasing your pretax contributions to your employer’s retirement savings plan. Deferring more of your pay can lower your tax bill, since you don’t pay current taxes on your contributions.
You may also be able to deduct all or part of the contributions you make to a traditional individual retirement account by April 15, 2014, on your 2013 income-tax return. The limit for 2013 contributions is $5,500 ($6,500 if you’re age 50 or older). Talk to your tax advisor about the deduction requirements.
Take Losses . . .
A consistently underperforming investment that has lost value since you acquired it may be a good “sell” candidate, especially if it shows no signs of improving. Capital losses are fully deductible to offset capital gains and up to $3,000 of ordinary income each year ($1,500 if married, filing separately). Excess losses that you can’t deduct for 2013 can be carried over for deduction in future years, subject to the same limitations.
Don’t make taxes your only reason for selling an investment. Consider the impact on your overall portfolio before you decide.
. . . And Profits
If you do plan to sell an underperforming investment, it may also be a good time to take your profits on an appreciated investment. Using your losses to offset your gains can be a smart tax move.
Bunch Medical Expenses
You can deduct unreimbursed medical expenses only to the extent they exceed a floor amount equal to 10% of your adjusted gross income (AGI). (The AGI floor is 7.5% if you or your spouse is age 65 or older.) Bunching two years of expenses into one year may help you exceed the floor. If possible, consider rescheduling medical appointments and procedures that were planned for early 2014 to late 2013, and pay out-of-pocket costs before year-end if doing so will provide a tax deduction.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank & Trust nor its affiliated Companies provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.
This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.