While you generally have until April 15, 2014, to make 2013 tax your contributions to your individual retirement accounts, nearly all other tax moves you make must be accomplished prior to December 31 of this year. With that in mind, here are the top five end of the year tax moves you may wish to consider.
- Contribute to Your IRA. Maximizing your contributions each year to your self-directed IRA is one of the most valuable things you can do each and every year from a tax perspective. Even if the contributions to your IRA are not deductible, the long-term tax savings can be quite significant. Make this a priority.
- Match Investment Losses With Gains. As you know, the tax burden arising from investment gains will depend on how long you held the investment as well as your level of income. Individuals who are facing relatively high tax bills from short-term investment gains can offset (either in part or entirely) those gains by realizing a corresponding investment loss. If you are already considering selling a losing investment, you may therefore want to close the sale prior to December 31, 2013, in order to reduce your tax bill.
- Consider All Available Deductions. Be sure you are considering all available tax reductions before you file your return. You are likely to already be familiar with most or all of the deductions, but consulting with a tax advisor (or even using a trustworthy piece of tax filing software) may reveal a valuable deduction or two that you didn’t previously know about. In some cases the availability of a tax break – such as a Federal Renewable Energy Tax Credit – may require you to spend additional money, but if it’s a purchase you would likely be making in the near future anyway, the effective cost will be reduced when you can receive a tax deduction in connection with that expenditure.
- Consider Deferring Income. If you own your own business or are self-employed as a consultant, you may be able to save money on your 2013 taxes by deferring income into 2014. Your ability to do this will depend upon the method of accounting you use for your business (i.e., cash basis accounting versus accrual). By delaying sending out invoices, or even pushing forward the due dates of those invoices, you may be able to shrink your 2013 tax bill. (Of course, you’ll still have to pay the appropriate tax as part of your 2014 return.)
- Start Planning for 2014. There’s no reason to wait until January 1 to begin planning your 2014 tax strategy. A starting point may be considering the areas in which you fell short during the past year. For example, if you aren’t going to be able to make the maximum allowable contribution to your self-directed IRA this year, be sure to readjust your budget so that you’ll be able to do so next year.
Finally, pay attention to changes to the tax laws that occur or are likely to occur at the end of the year (or in 2014, but are made retroactive in effect) and verify that the assumptions on which you’ve based your 2013 tax planning remain valid.