Holiday season has only just begun and the last thing you’re probably thinking about is tax season. But anyone hoping to best position themselves for what is sure to be an interesting tax year should probably give it a little brain power.
“For the last several years, Congress has given the taxpayers and the tax community these little jolts. They are at the point where they are making up tax laws for the year that has passed,” says Merry Brodie, an enrolled agent with Atlanta-based Brodie Accounting Services, which helps individuals and small businesses with tax planning and filing.
With taxes as a moving target, preparation is all about planning. Here are some things Brodie says you can do right now to get ready for what’s ahead and possibly save on your taxes.
Get organized. Start gathering receipts and other items needed to support your 2013 returns, says Brodie. Daycare receipts, health expenses and pay stubs all act as supporting documents for your returns.
Review the past. Sit with your old tax returns and current pay stubs and do an estimated tax return for 2013. If you can't do it yourself, spend about $50 to have a professional do it for you, says Brodie. The objective is to get an early idea of your tax liability so you can make proper adjustments.
Spend money to save money. "Everybody wants to save money on taxes and it takes money to save money," says Brodie. Actions such as increasing your 401K payments in these next few months or determining how much to allocate in the following year to medical reimbursement or dependent care accounts require you to pay pre-tax money, but doing so reduces your adjusted gross income (AGI). The lower your AGI, the less you owe the government. You may even be able to do something as simple as adjust the withholding on your last few paychecks of the year to help bring your tax payments in line with your tax liability.
Be generous. Charitable donations can help you reduce taxes owed as long as you itemize your return. But be warned, a few $25 donations and a couple of Goodwill receipts are probably not going to help you much, Brodie says.
Know the law, act accordingly. It helps to be aware of tax law changes in any given year, says Brodie. In 2013 for example, higher income individuals — singles with income of $200,000 or more or marrieds filing jointly with income of $250,000 or more — will pay more taxes. Medical expense deductions for anyone under 65 increase from 7.5 percent to 10 percent of income, which means fewer people will qualify. In addition, the forgiveness debt on home foreclosures, sales tax deduction, private mortgage insurance deduction, teacher's classroom supplies deduction, tuition and fees deduction and the residential energy tax credit are currently only good for 2013. Taking action in these areas before the end of the year will put you in a position to take those deductions.
Don't overlook the details at home. So many people are focused on their federal returns, they may forget about Georgia deductions. Parents of children in private schools can get a $2,000 credit on state taxes for donating scholarship funds to the school. Seniors 62 and older often forget to take their retirement income exclusion, says Brodie, which allows them to set aside $35,000 in non-taxed income, even if they aren't retired yet.
Consider the power of three. There is nothing wrong with doing your own taxes, says Brodie, but every three years it's a good idea to have an enrolled agent — a professional qualified to represent taxpayers before the Internal Revenue Service — complete or review your work. That way, if you missed something, you will still have time to file an amended return.
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