January: the month to start your 2013 year-end tax planning!
If you really want to get a handle on your 2013 tax bill, the time to get serious is now. What to do? For starters:
Maximize your 401(k) contribution. This is the easiest way to save money -- by taking it out of one pocket and putting it away in another. If your employer matches, so much the better. Remember, though, that if you are the employer, your contribution may be limited by employee participation. The maximum 401(k) contribution for 2013 is $17,500 ($23,000 for taxpayers who will be 50 by year-end).
Reconsider your withholding. Taxes have gone up, folks, and not just for "millionaires and billionaires." While the new highest rates kick in at $400,000 for single filers and $450,000 for joint taxpayers, other tax increases apply at much lower levels, including the hidden tax from the phase-out of itemized deductions and the new 3.8% "Net investment income" tax enacted with Obamacare.
Make your other tax-advantaged savings contributions now. Many of us wait until the last minute to fund Individual Retirement Accounts, Health Savings Accounts, and Section 529 plans. That's disorganized thinking. The sooner you fund these tax-deferral vehicles, the sooner the earnings escape the grasp of the tax man. The 2013 limits for these plans:
- IRA: $5,500 ($6,500 for taxpayers age 50 or older during 2013).
- HSA: $3,250 for single coverage, $6,450 for family coverage.
- College Savings Iowa: $3,045 per donor, per donee.
Finally, if you use your car for business, start keeping a mileage log. The IRS is examining more small businesses every year, and car expenses are one of their favorite targets. Keeping track of your business mileage can make the difference between a "no change" and an ugly audit.
None of this will make your tax problems go away, but they are a good start. Consult your tax advisor to make sure you are doing it right.