Happy Birthday US Federal Income Tax! It was 1913 when Americans were first subject to a 7% Income Tax. Today, 100 years later, we are dealing with an enormously complicated and increasingly controversial income tax system.
Now is the time to get ready for Tax Day on Tuesday April 15, 2014 when your income tax return is due for 2013. Wait, you say, we just sent in our 2012 return. Is there no rest from taxes?
Well of course you could wait until next April to start thinking about tax savings for 2013 but by then it may be too late. Here are some things to do now that will make things easier this time next year.
1. Start your tax organizing now
This is as simple as a labeling a manila folder where you start to aggregate your receipts for taxes paid, your charitable contributions and your medical expenses.
2. Adjust your withholding and your estimated tax payments
If you had to write a big check last week, take the time to make sure your withholding and estimated payments will cover that tax liability for 2013. And if you are getting a big refund, see if you can adjust your payments down so you aren’t giving the government an interest free loan on your money. If you are getting a refund, use it wisely. Pay down your credit cards or other debt. That will give you an immediate return on your money.
3. Check the status of your refund
Speaking of refunds, the IRS has a website for you to check on the status of your check. Where’s My Refund IRS site: https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
4. Plan to get an income tax projection done by your tax preparer this fall
Nobody likes surprises at tax time but getting a 2013 tax estimate calculated in the 4th quarter this year may give you time to deal with any unusual situations. The cost of a review will is a small investment in your potential savings and your peace of mind.
5. Increase your contributions to retirement plans
One of the best ways to save on taxes is to make pre-tax investments into your 401(k) and/or IRA plans. Less than 7% of eligible workers contribute the maximum amounts ($17,500 under 50 and $23,000 over 50) into their 401(k) plans. We had many clients bring in 2012 contributions just before April 15. If you make those 2013 contributions now you will have a year for the money to potentially grow – so don’t wait!
The Income Tax birthday may not make you want to celebrate but with some planning now you may be celebrating this time next year.