Quick Tips for End of Year Tax Savings
By Gerri Walsh
President, FINRA Investor Education Foundation
With all the hustle and bustle of the holidays, it’s easy to forget that the end of the tax year is quickly approaching. Here are four steps you can take now or in early 2014 to reduce your tax burden.
1. Consider a charitable donation. If you make a contribution of cash, stock that has appreciated or other assets to a charitable organization, chances are good that you’ll be able to lower your 2013 adjusted gross income. How much you can deduct is determined by the class of asset you donate and the type of organization you give to, so consult IRS Tax Tip 2011-57 or your tax adviser for details.
2. Add to your employer-sponsored traditional retirement plans. The Thrift Savings Plan or a 401k can reduce the income exposed to federal and state income taxes. Contributions are limited to $17,500 if you’re under age 50; those 50 or older can contribute up to $23,000. Your employer sets the final date to receive your retirement plan contributions, but funds must be deposited within the current tax year, which ends December 31, 2013.
3. Establish or add to a traditional IRA. You have until April 15, 2014 to limit the impact of federal and state income taxes by establishing or adding to a traditional Individual Retirement Arrangement (IRA). The 2013 IRA contribution limit is $5,500 of your taxable income, but those 50 or older can contribute up to $6,500. Don’t forget that spouses who aren’t currently in the workplace may also contribute to an IRA. Money deposited into a Roth IRA won’t be exempted from taxes immediately, but it will accrue tax-exempt growth. Roth IRAs are a great way to get your money working for you. And, tax-advantaged IRAs are subject to income restrictions, so plan carefully.
4. Use what is left in your Flexible Spending Account. Don’t forget about any balance remaining in your 2013 health care Flexible Spending Account (FSA). Although the IRS recently amended the rules permitting an employer to allow carryover of up to $500, many plans are still “use it or lose it”. These plans require that FSA funds be exhausted by December 31. Other plans give you until March 15 to receive service under a 2013 FSA, and claims can be filed up to March 30, 2014. Make sure you understand what your current employer’s policy is, asit may have changed since last year. It’s real money you’re throwing away if you don’t use your FSA funds by your plan’s deadline!
The FINRA Investor Education Foundation wishes you a Prosperous New Year!
Need some advice about saving for your future? SaveAndInvest.org can help!
- Written by Guest Blogger
- Category: Blog
- Published: 31 December 2013