Bunch medical deductions.
Luckily, most of us don’t seem to have enough medical expenses to exceed the adjusted gross income tax floor (7.5 percent for 2012, rising to 10 percent this year). But if you face elective procedures, such as cosmetic surgery or braces, you have an opportunity to bunch them together into one tax year.
Take advantage of catch-up provisions for retirement savings and investment plans
Once you pass a certain age, you can typically contribute more money to these tax-favored plans, such as 401(k)s, 403(b)s, and IRAs. For instance, in 2013, a worker 50 years old or older can kick in an additional $ 5,500 to the standard $ 17,500 deduction allowed for a 401(k) plan.
Donate appreciated stock
Wall Street has seen a smart recovery these past few years. If you want to cash out your position in a winning stock, you’ll have to pay a capital gains tax. If you’re in a giving mood, however, you could simply donate the stock to your favorite charity. The beauty of this is two-fold: You avoid that capital gains tax, and you get to take the deduction for the price of the stock at disposition time, not at acquisition time. Oh, and you get to look like a hero to the recipient.
Fund a retirement plan
You can put as much as 20 percent of your net self-employment income, or a maximum of $ 51,000, into a SEP-IRA. And you can do this as late as October 15th , as long as you filed for an extension on your original return. Similar tax dampening funding rules apply to the Simple IRA and Solo 401(k).
Pay your teenager to work for you
Obviously, you have to own your own business. If so, and your child is under 18, you avoid employment taxes. This is a win-win, as it reduces your taxable income while putting some tax-advantaged money into the hands of someone who’s going to be asking for it in any event! And along the way, it will give “junior” an insight as to what mom or dad does for a living, plus possibly training your potential successor!
In a move that shows it may be getting a bit soft in its old age, the IRS itself actually offers tips on reducing the tax bite. Though the IRS cleverly waits until after nearly half of Americans already have filed their taxes, their tips, (visit its website at: www.irs.gov/uac/Newsroom/Five-Tax-Credits-that-Can-Reduce-Your-Taxes), offer guidance on taking advantage of tax credits—yes, credits, not deductions. These are aimed mostly at lower income earners. For instance, the IRS notes the “Savers Credit,” which provides a credit of up to $ 2,000 beyond the deduction of the income you might have earned from contributing to a qualified IRA or 401(k).
So, maybe, just maybe, we should be saying “Happy 100th Birthday IRS!” Their tips are some birthday presents we can all celebrate!