April 15th 2014, or the 2013 tax filing due date, is not that far away. Which means its time to do some serious tax planning so that by year end you maximize your income while minimizing your taxes dues when filing in 2014. But first, the official rates and tables for tax year 2013. In the table below you only need to find your taxable income bracket, filing status and you can get an idea of the federal taxes you would owe.
Some key items to factor and/or consider for your 2013-14 tax planning:
- Marginal tax rates increased to 39.6% for those earning over $400,000(single)/$450,000(married) as the Bush era tax breaks expired. So if you are in this higher income bracket, you really need to start thinking about all the deductions and tax credits you can take. And be prepared for a higher AMT bill as well.
The fiscal cliff legislation reinstated limitations for itemized deductions claimed on 2013 returns of individuals with incomes greater than $250,000/$300,000 (single/married). You can see more about these limits here.
- Open an IRA and maximize your 401k contributions. The maximum tax-deductible contribution to an Individual Retirement Account (IRA) for 2013 is $5,500 ($6,500 if you are age 50 or older). The maximum tax-deductible contribution to a 401(k) plan in 2013 is $17,500 or $23,000 if you are age 50 or over. These benefits phase out as your income increases so make sure you are aware of the 2013 income limits for IRA contributions. An IRA must also be opened by December 31 to benefit from the tax deductions (see best IRA broker options). You can still deduct contributions made until April 15, 2014 on your 2013 taxes, but making them before year-end starts the clock on tax-deferred growth sooner.
- Harvest investment (capital) losses. Consider selling investment losses to offset any capital gains. Or if you only have losses, you can write off up to $3,000 against your ordinary income. If you have excess losses, they may be carried forward into future tax years and used at a rate of up to $3,000 per year.
- Higher income limit to claim medical deductions. Prior to 2013, you could claim an itemized deduction for medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5 percent of your AGI. But thanks to the health care laws an even higher threshold of 10 percent of AGI now applies to most taxpayers. There are some exemptions which are detailed in this article.