4 Ways to Reduce Your 2013 Tax Bill

Friday, January 31, 2014

The 2013 calendar year may be over, but opportunities to lower last year’s tax liability are not. Troll for overlooked deductions and tax credits. Read more: http://www.cnbc.com/id/101362442

The 2013 calendar year may be over, but opportunities to lower last year's tax liability are not.

Indeed, while many of the most common tax-planning strategies used to accelerate income or defer deductions—including tax-loss harvesting, prepaying medical expenses and managing your year-end bonus—had to be implemented by Dec. 31, others remain ripe for the picking. If you know where to look.

"In a year where tax rates are higher and the 3.8 percent surtax on net investment income will affect higher-income individuals, any deductions you can find will be worth even more," said Bill Dendy, a certified financial planner and president of Elite Financial Management in Dallas.

Effective this filing season, the new top tax rate for individuals making more than $400,000 ($450,000 if you're married filing jointly) is 39.6 percent. Those with modified adjusted gross income of at least $200,000 ($250,000 for married taxpayers) will also be subject to a 0.9 percent Medicare tax and/or the net investment income surtax of 3.8 percent on unearned income.

Dendy's advice to clients? Revisit your tax-planning strategy, and don't leave any deductions on the table.

Taxpayers have between now and April 15 to make prior-year contributions to their traditional and Roth IRAs, along with their Health Savings Account (HSA).

Contribution limits to your IRA are $5,500 for 2013, but the tax-deduction benefit starts phasing out for married taxpayers filing jointly with an adjusted gross income of more than $181,000 and single filers who earn more than $114,000.

Likewise, taxpayers who made less than the $3,250 maximum contribution to their HSA last year may still make prior-year contributions until April 15. HSAs, which must be paired with a high-deductible health insurance plan, are medical savings accounts that are funded with pretax dollars. The earnings become tax-free if used for qualified medical expenses, and any unused money in the account can be used to cover out-of-pocket health-care costs in retirement.

Read more: http://www.cnbc.com/id/101362442