8 ways to cut your tax billTo keep your tax bill as low as possible this filing season, you need to stay on top of all the ways the rules have changed.
1)
Shelter incomeOne of the few things you can still do to cut your 2013 tax bill is to top off a traditional IRA.
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2)
Consider itemizingHigh earners generally come out ahead by itemizing rather than taking the standard deduction: A study of 2010 returns by the Tax Policy Center found that doing so boosted after-tax income for those in the top bracket by 4.4%.
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3)
Self-employed? Pay quarterlyWhen you're self-employed or collect a big portion of your income from investments, you generally have to pay estimated taxes throughout the year. For 2013 the risk is that your estimate was too low.
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4)
Weigh filing jointlyIn the wake of last year's Supreme Court decision striking down the Defense of Marriage Act, the IRS has ruled that same-sex couples legally married in any state must file federally as married. That holds even if you now live in a state that doesn't recognize same-sex marriage.
So gay couples have to decide whether to file jointly or separately.
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5)
Deduct home office expensesUntil this year, to grab this write-off you had to break out a measuring tape and a calculator and dig up a year's worth of bills.
This year you have a choice: You can instead simply deduct $5 per square foot of office space. Unless the old method would net you more, take the shortcut (the simplified deduction is capped at $1,500). "The new option is great for people who didn't want the headache of figuring out the home office deduction," says Herman.
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6)
Cluster medical costsUntil last year you could deduct medical expenses that exceeded 7.5% of your AGI. That hurdle has been raised to 10% if you are under 65. Those 65 and older can keep using 7.5%, but only until 2017.
What to do: If you're near the cutoff, take a second pass through your receipts.
"Don't forget dental care and travel costs for your doctor and dentist visits," says Staten Island CPA John Vento. Other expenses you might overlook: doctor-prescribed weight-loss programs, laser vision surgery, and health-related home upgrades, such as safety bars in the shower (see IRS Publication 502 for a full list). Despite recently liberalized laws, though, medical marijuana is not deductible. Longer term, try scheduling elective medical procedures so that you bunch as many expenses in a single year as possible.
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7)
Check brokers' statementsWith the S&P 500 up 30% in 2013, you may have been inspired to sell winning stocks or funds, perhaps to rebalance your portfolio.
Calculating your taxable gain should be easier than it once was: Brokerages and fund companies must now report your cost basis, essentially what you paid plus commissions, when you sell a stock, bond, or fund.
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8)
Avoid auditsWith more small businesses out there -- partnerships and sole proprietorships in particular -- IRS officials have said that they are ramping up auditor training in this area. Filers with Schedule Cs already face two to three times the audit risk as the average filer, according to tax publisher CCH. So it is extra important to keep good records if you report business income on your personal tax return.
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9) Keep your returns safe
As recently as 2010, tax- and wage-related identity theft, including fraudsters filing returns in your name to nab your refund, made up just 16% of all ID-theft complaints at the Federal Trade Commission. Last year that portion rose to 43%. Below are four common ways ID thieves can strike -- and what you can do to protect yourself.
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10)
Plan for 2014With all the work you put into your 2013 return, the last thing you want to think about now is your 2014 return. But get a headstart on tax planning today, and you'll thank yourself a year from now when your tax bill is lower.
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