How Can You Cut Next Year’s Taxes?

December 2013

Taxes may be the last thing you want to think about at the holidays, but the end of the year is a great time to take some smart steps that can help you minimize your future tax outlays. The Connecticut Society of CPAs provides these ideas for keeping more money in your pocket.

Claim all your credits and deductions.

If you have kids, do you qualify for the child and dependent care credit? If you or a family member are in college or planning to attend soon, are you taking advantage of some of the many education-related incentives that can lower the high cost of tuition? Were you aware that you can earn a tax credit if you make some qualified energy-saving improvements to your home? It can be easy to overlook many credits and deductions that can help you lower your tax bill. Talk to your CPA to learn what you can claim when you file your taxes next year and if any of your future plans will qualify you for credits or deductions.

Do some smart planning.

The top individual tax rate jumped to 39.6 percent in 2013, and the dividend income and long-term capital gains tax rate for those in that bracket also rose to 20 percent, from 15 percent. At the same time, beginning in 2013, a new 3.8 percent Medicare surtax applies to net investment income for some high-income individuals. Recent tax law changes also mean that some taxpayers may be surprised to find themselves subject to the alternative minimum tax. If you think you might be subject to any of these taxes, prudent planning now may help you minimize the impact. Be sure to contact your CPA today for more information.

Help your favorite charity.

Making a qualified charitable contribution before year end will allow you to deduct the amount from your 2013 taxes. There are rules on what’s deductible, including new regulations when older people use IRA distributions for charitable gifts, so ask your CPA for more details.

Take the long-term view.

Is saving for retirement one of your top financial priorities? While it’s tough to think long term while you’re dealing with your daily expenses, creating a retirement nest egg actually pays you back twice: First, it helps you secure a sound financial future so you can enjoy retirement without any money worries. Second, depending on what kind of retirement vehicle you choose, it offers you direct savings on taxes either now or when you retire. If your employer matches your contribution to a company-sponsored retirement plan, that’s another great incentive to get into the retirement saving habit.

Don’t ignore health care reform.

When a new provision of the Affordable Care Act kicks in on January 1, 2014, neglecting to secure coverage will cost you. Those who are uninsured for more than three months during the year will have to pay a penalty. The bottom line: You may already satisfy this requirement if you have existing coverage, and you may be able to find a suitable option through a government exchange if you don’t. If you are uncertain about where you stand or what your options are, be sure to contact your local CPA for advice.

Your CPA can help.

No matter what kind of financial questions you may face, remember that your local CPA can offer the advice you need to make informed decisions. Turn to him or her for insights on all your financial concerns.

© 2013 American Institute of Certified Public Accountants. 360 Degrees of Financial Literacy.

Questions? Contact Mark Zampino at 860-258-0212 or
markz@ctcpas.org.