By Sheryl Rowling
SAN DIEGO– There’s Still Time to Save on Taxes!
Dear Money Maven,
It’s almost the end of the year. I’m worried about taxes. Is there anything I can do now to cut down on my tax bill? Thank you.
Sincerely,
Nervous Nate
Dear Nate,
Yes, I have some ideas for you. Before I go through them, I must first recommend that you meet with your CPA. The tax laws are complex, especially when it comes to Alternative Minimum Tax and the new Medicare surtaxes.
Having said that, I can give you several pointers:
1) If you have a business, consider paying your kids for helping you. If you pay each of them $5,000 for doing actual work, you can deduct it and your kids will likely not pay any tax. Also, they can use that money to put into a Roth IRA. The money will grow over the years and neither the principal nor
the growth will ever be taxed. For example, at an average 7% return, that
$5,000 can grow to $150,000 in 50 years – all tax free!
2) If you are in a very low (or zero) tax bracket, consider converting some of your traditional IRA to a Roth IRA. Although you might pay a little bit of tax on the conversion, you will never pay tax in the future on the principal or future growth.
3) If you are not subject to Alternative Minimum Tax (if you don’t know, this is a reason to consult with a CPA), pay what you think you will owe in state taxes now instead of in April. This will reduce your 2013 Federal tax bill.
4) If you are not subject to Alternative Minimum Tax, consider prepaying your spring property tax bill. This will reduce your 2013 Federal and state tax liabilities.
5) To generate a bigger deduction for charitable contributions, consider donating to a donor advised fund by the end of the year. You will get the deduction right away even though you don’t distribute the funds to charity until 2014 or beyond. For more information on this, please see my earlier column or check out the Jewish Community Foundation’s website at www.jcfsandiego.org.
6) Donate your too-small or too-large clothes. Record what you’re giving away and, as long as they are in good condition, you can deduct the current value. If you do this before year end, you can make the holidays brighter for those less fortunate and cut down on your taxes at the same time.
I wish all of you a very healthy and happy new year!
The Money Maven
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Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com