Try these year-end tax easers
With fewer than two months to go before the end of the year, now is the time for some quick maneuvers so your tax return doesn't make you sick early next year.
There are major changes this year for individuals with adjustable gross incomes exceeding $200,000 and married couples at more than $250,000. And for couples over $450,000 and individuals over $400,000, there's a higher tax rate: 39.6 percent. Throw in the new 3.8 percent surtax on investments for high earners, and possibly another 0.9 percent change, and the total tax liability can go to 44.3 percent. Further, capital-gains and dividend taxes for high-income people can go to 20 percent.
Being attentive now is especially important if you are affluent. But it pays for everyone to use tax-cutting strategies. The easy ones:
• Clean the closets. If you use deductions, a simple one is to clean the closets and give items to charity. Just make sure you get signed paperwork that lists each item and its value.
• Pay for college. If your child or you are in college or technical training, you may be able to get up to a $2,500 American Opportunity Tax Credit. Income cutoffs for the maximum are $160,000 for couples and $80,000 for singles. So if you are within those thresholds and haven't paid enough for college to qualify for the max this year, pay bills now to boost that credit.
• Use 401(k) plans to cut your income. If you are just above an income cutoff for a juicy credit such as the college credit, child tax credit or dependent care credit, don't let those money-savers get away from you. An easy way to whittle a good chunk of income is to put more money into a 401(k), 403(b) or other retirement savings plan at work. The maximum you can contribute this year is $17,500 if you are younger than 50; $23,000 if older than 50. But remember: If you have been putting money into a Roth 401(k) at work, that's not cutting your taxes. For tax cutting, choose regular 401(k) contributions.
• Go to the doctor. One unpleasant surprise for people with a lot of medical bills this year is a change that makes it tougher to claim a deduction. Previously, you could get a deduction when your medical expenses totaled more than 7.5 percent of your adjusted gross income. But now that's up to 10 percent unless you or your spouse is 65 or older. You might be able to get over the 10 percent threshold by seeking dental care, vision care or medicine now that you might have otherwise delayed. Just realize you can claim only the amount over the hurdle.
• A hodgepodge of fees. Whether you pay a tax preparer or run up expenses for your job that aren't reimbursed by your employer, you might be able to get a deduction. Items such as unreimbursed travel for work, depreciation on a computer, union or professional dues, lawyer fees and others fall within “miscellaneous” deductions. But they have to total at least 2 percent or more of your adjustable gross income.
• Give to charity. Seniors can give directly to charity from their individual retirement account and, depending on the amount, can cut the requirement to take distributions and pay taxes on them. At the end of 2013, this benefit disappears. For anyone, a good way to give is to donate stocks, bonds, mutual funds or other assets worth a lot more now than when they were bought. For people worried that their holdings have soared too far too fast, giving shares to charity allows a valuable donation, and you don't have to sell the asset and pay capital-gains taxes.
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- University of Pittsburgh researchers revisit war of electric currents
- Pennsylvania Game Commission reaps revenue from shale gas under game lands
- As historic breakup nears, Alcoa works to redefine its ‘advantage’
- Energy Spotlight: Minking Chyu
- Older workers try to cut back on hours at job
- Small stores take big gamble by not upgrading credit card readers
- Stop neighbors from stealing your Internet
- Program lets public service workers be forgiven for student debt
- Asian bug threatens oranges in Florida
- Yahoo investors losing patience with ‘star’ CEO Marissa Mayer
- Nutritional supplement makers, led by GNC, want to create voluntary safety standards