Higher taxes? Amid constant news chatter about sequestration and the looming cuts, the stock market rose to an all-time high and the employment rate appears to have dramatically improved. Everything is getting better! Even if the economy does manage to be on the upturn even after sequestration (and according to a Gallup poll, many Americans seem to think things are looking up), there are still some set-in-stone changes for the 2013 tax year that you should be aware of and start preparing for. So why is this a good time to talk to a tax expert and start preparing for 2013 taxes before the 2012 tax season has completely run its course? In four words: the Fiscal Cliff Deal.
If you’ve been following financial news, by now the ‘Fiscal Cliff Deal’ may seem like old news. The truth is, though, that you might not even begin to see the effects of this deal until you begin filing your taxes next year. This deal increases taxes for 77 percent of Americans for the 2013 tax year in the form of payroll tax increase. Another component of deal (and the part that could hurt even worse with a stock market on the rise) is a new 3.8 percent tax being imposed on investment income on higher income families. With all of that and the new health care law, it would be hard to avoid paying a larger amount in taxes next year. There are things that you can do to decrease the amount of tax you will owe.
Get an IRA and Contribute to it
In this case we don’t mean a Roth IRA since those funds aren’t tax deductible (the advantage of these is that you won’t pay taxes when you withdrawal in retirement but for tax deduction purposes they’re no good). If you have a regular IRA, you can contribute $5,000 per person ($6,000 if you’re 50 or older) and you can deduct this from your taxes.
Increase your 401(k) contribution
Money that goes into your 401(k) is money that goes in tax-free and can help to reduce the amount that you would owe at tax time. Plus, many employers offer matches or other incentives to contribute so it wouldn’t hurt to take full advantage of that perk.
Sell your Losing Stocks
Selling losing stocks can allow you to record a loss on your taxes next year and you can re-invest somewhere where your money may do better.
Of course, while these three suggestions are good ideas to prepare for next year’s higher taxes, every tax case is different. There are a lot of options out there to help you reduce the amount you may owe to the federal government come 2014. If you want to talk about your individual case or want to know what your other options are, make a phone call and one of our agents can help.
Check out the Money Chimp Tax Calculator to get a quick snapshot of your possibly higher taxes.
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