Benjamin Franklin once stated that one could be certain of nothing in this world except for death and taxes. With the Las Vegas economy slowly recovering from a financial meltdown, this statement rings truer than ever. If you too felt the sting of taxes in the year 2012 and want to reduce that burden for 2013, you need to follow a proper tax reduction strategy.
Accelerating Your Income
Since the tax rate for 2013 is slightly higher than for 2012, it would be a smart move to accelerate your income from 2013 to 2012. Professionals who foresee a promotion or a salary hike in the near future and thus expect to earn more in the year 2013 than in 2012 can also employ this tax reduction strategy. However, while adopting this strategy, you need to consider the fact that Bush tax cuts are going to expire soon.
Strategies for Accelerating Your Income
As already mentioned, an income acceleration strategy seeks to move income to the current financial year 2012-2013 from the next fiscal year in view of the higher tax rates applicable later. If you are considering using this strategy to save taxes, you can request your employer to pay any bonuses or cash incentives in the current financial year instead of the next year. That apart, you can shift your distributions from IRA in the present financial year rather than 2013-14.
Other Ways of Accelerating Your Income
You can also liquidate some of your investments including stock holdings that offer tax gains in the current year instead of the next. This would also help you negate any capital loss carryovers from the previous year. Yet another way of accelerating your income is by transferring your pre-tax retirement savings into a post tax Roth account. This will aid you in locking in a tax liability for the next year. In case you are a self-employed individual and receive most of your payments in cash, you can save tax by issuing bills for your service and collecting payment for the same before March 31, 2013.
Keep Accurate Records of the Donations You Make
If you are looking for smart tax reduction strategies, you can make itemized deductions that your accounts show till the last fiscal year to make donations and claim the same for the current financial year. However, these deductions need to be supported with accurate records, so that you do not face any hassle later. Though a bank record would suffice for any donation below the amount of $250, you should ask for an acknowledgment letter from the charitable institution if you donate an amount over $250.
Squeeze in Your Doctor’s Appointments
Finally, based on the deductions allowed in 2013-2014, it makes sense to take as much of your medical expense deductions this year. Thus, you should schedule your next appointment with your doctor or get your annual physical done as early as possible to avail the maximum tax benefit this financial year.