I'm a big science fiction fan so I've always hoped that time travel would one day be possible. Then I look at the calendar and think it's already happening.
With time ticking away so quickly, we need to act now to take advantage of tax moves that could help reduce our upcoming 2013 tax bill.
Here are six easy tax tasks to take care of this month.
1. Adjust your withholding
Long-time readers know that I preach and preach and preach this multiple times every year. Yes, I know, it's easy to let Uncle Sam be your banker, doling out a refund each year. But that's your money he's holding onto because you have too much withheld throughout the year. And he doesn't pay interest.
Your goal is to get the Goldilocks "just right"
amount of income taxes taken out of your paychecks so that it's as close
as possible to your eventual tax bill. And it's easier to get closer to that final tax bill when you adjust your payroll withholding sooner in the year. Like now!
2. Investigate your investments
If your withholding adjustment nets you more money, consider putting some of it into long-term investments. Even if you aren't adding anything right now, midyear is a great time to give your give your portfolio a quick review. Most of us are in tax brackets low enough so that any investment income -- qualified dividends, capital gains distributions or capital gains if you make a profit on an asset's sale -- will be taxed at a maximum 15 percent rate.
But if you happen to be in a higher tax bracket, congrats on your extra earnings. And take a look now at how that could affect your tax bill beyond a higher ordinary income tax rate.
If you make more than $200,000 ($250,000 if married filing jointly), you might face the 3.8 percent Medicare surtax. Examining that possibility now gives you time to develop a strategy to deal with this added tax, such as maximizing contributions to pretax retirement plans or shifting some of your holdings into municipal bonds or muni bond funds since these earnings don't count in the Medicare surtax calculations.
Of course, never make investment decisions based solely on taxes or you'll end up with the proverbial (that's the writer's word for clichéd) tax tail wagging the investment dog. Talk with your tax and/or financial adviser(s) about what works best, tax- and investment-wise, for your personal situation.
3. Donate to charity
Although most nonprofits focus their annual fundraising efforts at the end of the year, you don't have to wait until the end of December to make charitable contributions. Summer typically is the slow money time for charities, so they are thrilled when they get off-season donations.
You can give cash, which in IRS-speak includes gifts made by check and credit/debit cards. You also can clean out your closet and give your favorite charity your unwanted clothing or other household items.
Whatever you give whenever, be sure to get a receipt.
4. Add to your retirement savings
As long as you're in the giving mood, give to yourself. Specifically, put some money (again, those extra dollars you got from adjusting your withholding) into your retirement account now.
The sooner you put money into your
retirement plans, the longer it has to grow to the amount that will
ensure the type of post-work lifestyle you want. You can sock away cash in your IRA, Roth or traditional, as well as bump up the amount you put into your workplace 401(k) plan.
5. Enhance your home's energy (and tax) savings
We just got through a spate of 100-plus temperatures here and we're nowhere near as hot as it's been further southwest. If you've endured a similar heat wave and discovered that your house isn't as energy efficient as you'd like, Uncle Sam might be able to help.
The residential energy improvement tax credit, a maximum of $500, is on the books through 2013. Such things as added insulation, new windows and house fans could trim your cooling bill and pay off at tax-filing time, too.
And while $500 might not seem like much, remember that it's a tax credit, which reduces your tax bill dollar-for-dollar.
6. Bunch your deductible expenses
I'm a borderline hoarder so the idea of collecting tax receipts really appeals to me. This process, known as bunching, basically is a way for you to consolidate eligible deduction expenses -- such as medical costs or unreimbursed business expenses -- into one tax year where they will count the most.
These two areas require you to meet an expense threshold before you can use them. For medical and dental costs you claim as itemized deductions, the threshold is 10 percent of your adjusted gross income (AGI). That's right. It went up in 2013 from 7.5 percent to 10 percent.
Unreimbursed employee expenses, also claimed on Schedule A, must exceed 2 percent of your AGI.
By starting to track the costs now instead of frantically scrambling for evidence of deductible costs at the end of the year, you'll have a better idea or what you expect to or can spend in those areas. And you'll be in better shape to spend a little more to get over the threshold hurdles or decide to push any costs that you can claim into the next tax year where they'll do you more deductible good.
If these whet your tax appetite, you'll find even more tax to-do's over there in the ol' blog's right column. Those tax tips are just below the Oct. 15 extended filing deadline countdown clock.
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