6 Things to Do With Your Money Before 2014

Credit.com

As we approach the end of 2013, there are several steps you can take to save on taxes. It’s important to get organized so you can be sure you are taking all of the tax deductions to which you are entitled. And it’s never too late to review your rate of withholding and estimated taxes to be sure you won’t have any unwanted surprises on April 15. If you have under-withheld, you will have a few months to save the money you will owe on tax day.

Let’s take a look at a few ways you can maximize your tax savings before the end of the year.

1. Retirement Plans

Be sure you are maximizing contributions to your retirement plans. For 2013, you can make a tax deductible contribution to your 401(k) plan of up to $17,500 plus another $5,500 as a catch-up contribution. If you are self-employed, be sure to maximize contributions to your Simplified Employee Pension (SEP) or your Simple IRA plan. If you don’t have access to a retirement plan, you may be eligible to contribute up to $5,500 in an IRA with an additional catch-up contribution of $1,000 if you are 50 or over.

2. Charitable Donations

Another great way to reduce your tax bill is to make charitable contributions. The most painless way to contribute is by donating stuff that you no longer need. We all have closets full of clothes, books, toys and junk that we no longer need. If you itemize your tax return, you can deduct the fair market value of the items you are donating from your taxes. Many nonprofits, including the Salvation Army and the Goodwill, provide donation guides to help you access the value of your donations. The items must be given to a qualified charity and you need to get a receipt. Keep detailed records of everything you donate.

If you are planning to make cash donations, donate appreciated stock rather than cash. You can get a tax deduction and avoid paying capital gains tax on your donation. As long as you make a contribution to a qualified charitable organization, they will not have to pay taxes on the appreciated stock. Additionally, if you are over 70 and 1/2, you have the option to donate your Required Minimum Distribution to a qualified charity and avoid paying regular income tax on the distribution.

3. Giving Gifts

The end of the year is also a good time to consider making gifts to family. For 2013, you can contribute up to $14,000 per person per year without impacting your total estate tax exemption of $5,000,000. I realize that most of us are not concerned about exceeding the $5,000,000 estate tax exemption however; you still may want to make gifts to your children. You can minimize your capital gains taxes by gifting appreciated stock. If your children are in the 10% or 15% tax bracket, their long-term capital gains rate is 0%.

4. Losses on Stocks

This is also a good time to harvest any tax losses you may have on poor performing stocks or stock mutual funds. When rebalancing your portfolio, try to offset securities that have a gain with securities that are carrying a loss. However, don’t let the opportunity to take a tax loss drive the decision to sell a particular stock mutual fund that you would have otherwise held on to.

5. College Savings Plans

If you want to help your children or grandchildren save for college, consider opening a 529 College Savings Plan. Many states allow you to deduct contributions to your state’s 529 plan on your state income tax return. In addition to the state income tax deduction, contributions made to a 529 grow tax-free as long as they are used for qualified education expenses.

6. Self-Employed? Time Your Income Right

If you are self-employed, you may have some control over when you receive income or when you pay expenses. Manage the timing of your income to minimize your taxes. Do some tax planning to avoid huge income swings that could push you into a higher income tax bracket.

Many people, especially those self-employed, leave a lot of tax deductions on the table. Keep good records of your business, charitable and medical expenses. You should also be sure to track your business, charitable and medical related mileage.


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