Reduce your taxes for next year - Fox29 WFLX TV, West Palm Beach, Florida-

Reduce your taxes for next year

Updated: April 14, 2014 09:52 AM
© iStockphoto.com / Jill Fromer © iStockphoto.com / Jill Fromer


By Andrew Housser

The filing of an annual tax return can be a real eye opener. With April being Financial Literacy Month, in addition to prime tax season, now is a good time to look at ways to save on next year's taxes. Regardless of your income, these tips can lighten your tax burden for 2013. Make a commitment this tax season to do what you can to lighten your tax burden next year.

1. Increase your retirement contribution. Putting the maximum amount into a traditional individual retirement account or IRA is one sure way to reduce taxable income. Contributions to plans like a 401(k) are tax-deferred. This means you do not pay taxes until you withdraw funds during your retirement years. Increasing your annual savings by $5,000 can shave $1,400 off the tax bill for those who fall in the 28 percent tax bracket.

2. Sign up for a flexible spending account. Employers that offer this type of pre-tax plan deduct an established tax-free amount from your paycheck and place it into an account. You can use these funds only for certain allowable expenses such as dependent care, health insurance or medical payments. Contributing to a flexible spending account reduces your gross income, thereby making your taxable income lower. Beware: Unless your employer allows funds to roll over from year to year, you could lose the funds if you do not spend them by year-end.

3. Be more charitable. Contributions to IRS-qualified, tax-exempt organizations (often referred to as having 501(c)(3) status) are deductible and can help lower your tax bill. For gifts of cash or property worth more than $250, you will need a written receipt from the charity showing the date and value of the donation. In addition to writing a check, you also can donate used items including clothes and household goods. Keep in mind that you can subtract the value these items would sell for in a thrift shop -- not what you originally paid for them. Goodwill's online guide is a good resource for determining the estimated fair market value of donations. If you volunteer for a nonprofit organization, you can deduct transportation expenses (including car mileage and public transportation fees) incurred while traveling to and from the volunteer site.

4. Bundle payments. Some taxpayers get close to having enough deductions to exceed the standard deduction. If this is true for you, consider bundling payments for two years into one year to take advantage of itemizing. Appropriate costs might include charitable contributions, medical expenses and financial fees. By combining what is essentially two years' worth of deductions into a single year (for instance, making the first year's contribution to your church in January, and the second year's contribution in December of the same year), you can exceed the threshold for standard deductions. This enables you to maximize smaller deductions that often are overlooked. This technique will allow you to itemize every other year, alternating with years when you take the standard deduction.

5. Maintain good records. You cannot take a tax deduction unless you have the paperwork to back it up. That is why it is important to have a central location – whether an expandable file folder or a computer file for scanned documents – where you store important tax documents throughout the year. Track documents regarding income, medical fees, charitable donations, investments, business expenses, mortgage statements, student loans, child care expenses and anything else that applies to your tax scenario.

These tax strategies can save you money when you file your tax return in 2015. With some careful tax planning all year long, you may be able to rack up even bigger savings. Do not wait until next April to evaluate your tax situation. Instead, review your situation every month at the same time that you look over your budget.

 

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
INFORMATIONAL DISCLAIMER The information contained on or provided through this site is intended for general consumer understanding and education only and is not intended to be and is not a substitute for professional financial or accounting advice. Always seek the advice of your accountant or other qualified personal finance advisor for answers to any related questions you may have. Use of this site and any information contained on or provided through this site is at your own risk and any information contained on or provided through this site is provided on an "as is" basis without any representations or warranties.
Powered by WorldNow

1100 Banyan Blvd.
West Palm Beach, FL 33401

FCC Public File
publicfile@wflx.com
561-845-2929
EEO Report
Closed Captioning

All content © Copyright 2000 - 2014 Worldnow and WFLX. All Rights Reserved.
For more information on this site, please read our Privacy Policy and Terms of Service.