Tax Tips Tuesday: Four Moves to Decrease 2013 Tax Liability
By The Tax Institute At H&R Block
Making charitable donations, paying some bills early, selling stock for a loss and putting more in retirement accounts in December can help some taxpayers reduce their tax liability. H&R Block (NYSE: HRB) advises on how taxpayers can use these four strategies to lower their 2013 tax bills.
There is still time for taxpayers to impact their 2013 tax liability – they just need to be sure to take actions that work for their situation.
With hundreds of billions of dollars in popular tax breaks claimed by students, teachers, homeowners and others scheduled to expire Dec. 31, taxpayers need to claim all the tax breaks they are due and take action now to reduce 2013 tax liability.
Give to others to get a tax deduction
Taxpayers claimed nearly $180 billion in charitable donations (cash and non-cash) in 2010, and this time of year charitable functions and gift-giving take center stage.
It’s important for taxpayers to remember for charitable donations to be tax-deductible, they must be made to qualified, tax-exempt organizations (IRS-approved nonprofit religious, educational or charitable groups), and claimed as itemized deductions on tax returns. H&R Block online clients can use the product’s Deduction Pro feature while others can use the Salvation Army donation guide to estimate the value of used clothing and household items, and be sure to keep receipts and pictures as needed to substantiate donations.
Pay some 2014 bills early
Taxpayers may want to consider pre-paying expenses to ensure they take full advantage of some tax breaks, especially if they might expire this year.
Among the options are pre-paying December mortgage payment due in early January, making an additional student loan payment to claim the highest possible interest deduction (up to $2,500) on their 2013 tax return and paying spring tuition early to take full advantage of the American Opportunity Credit.
Also, the tuition and fees deduction, which was claimed by more than 2 million taxpayers for a combined savings of $4.36 billion in 2010, is set to expire Dec. 31. It can still be claimed for tax year 2013, but it might not be available in the future.
Offset capital gains with capital losses
Those with a large net capital gain in 2013 could reduce their tax liability by selling stock before Dec. 31 if it would generate a loss. Also, capital losses don’t just offset capital gains; if capital losses exceed capital gains, up to $3,000 of capital losses can be used to offset wages.
Maximize retirement plan contributions
Taxpayers who have not contributed the maximum to their 401(k) may consider increasing contributions for the remainder of the year; contributions are made pre-tax, which reduces taxable income and potentially the overall tax bill.
Also, taxpayers eligible to deduct IRA contributions can make traditional IRA contributions to decrease 2013 income until April 15, 2014, and thus reduce tax liability on 2013 tax returns.
For more information about last-minute ways to improve tax outlook or for tax tips all year long, contact a local H&R Block tax professional. To find the nearest H&R Block office, visit www.hrblock.com or call 800-HRBLOCK.