As the current tax year of 2013 starts to come to a close, there are several ways you can plan for the upcoming tax season and beyond to ensure you give the IRS all you are due and keep more of the money you earn – all at the same time. Bert Seither, who helps entrepreneurs and small business owners find a path to success, suggests the following end-of-year tax tips for 2013:
1) Review your income and expenses from the year
The first step to take is to review your income from the past 12 months and the expenses you’ve incurred over this time period. It may be worth it to compare these figures from your 2012 income and expenses. Consider how this income was earned and how you covered your expenses. If you’re a business owner, review your bookkeeping and payroll records. Then determine what your tax rate is and how much you’ll owe to the IRS. Also, explore any tax deductions you can claim on business-related expenses. By taking a close look at this financial information, you may have some tax-saving opportunities right at your fingertips. At the very least, you’ll be prepared for April 15, 2014 and beyond.
2) Be aware of the new home office deduction option
In January 2013, the IRS announced an alternative tax deduction option for self-employed taxpayers who claim home office expenses in order to conduct business. Instead of having to deal with complex mathematical calculations to determine your deductible amount, the IRS now offers a simplified option. You can claim $5 per square foot of home office space for up to 300 total square feet. The maximum deduction amount is $1,500 when utilizing this method. To avoid potential tax problems when claiming this deduction, you should only include expenses that are incurred specifically for things directly associated with doing business in a place of residence.
3) Make sure you’re claiming all other deductions and credits
According to Bert Seither, many business deductions and credits go unclaimed every year. This means more money winds up in Uncle Sam’s pockets instead of in the bank accounts of hardworking business owners. This is a perfect reason why you should weigh all tax deductions and tax credits that can reduce your tax liability. If you’ve incurred new or additional expenses in 2013, explore your deduction opportunities, such as writing off vehicle expenses or meals and entertainment. If you’ve hired certain kinds of employees or have added energy-efficient items to your home or business, you may be able to claim tax credits on this year’s income. Some tax-saving opportunities are expected to expire at year’s end, so claim them while you can.
4) Account for any life changes like marriage, parenthood, and employment status
Life changes can have a major effect on your tax situation, Bert Seither says. If you got married in 2013, you may be able to file taxes jointly with your spouse. If you had one or more children this year, you’ll likely be able to claim them as dependents on your tax return, which can reduce your tax liability. If you took a new job or lost a job, this could impact your income and therefore affect your tax obligations. The same goes for new small business owners or those who dissolved a company in 2013. In addition, the IRS is now allowing same-sex married couples to file jointly, so be sure to take this into account if it applies to you.
5) Contribute to a tax-free retirement account
There are some nice tax benefits to making contributions to a tax-free retirement plan, such as a 401(k) or an IRA. Contributing to these plans can reduce your overall taxable income, and the maximum contribution amounts for them often change over time. That’s why it is worth setting aside some money for these plans to save for the future and save on taxes all at once.