Holiday plans have been made, and you now have two weeks left in 2012 to score some big savings and fatten your wallet now and in 2013. Sharon Epperson offers tips on how to increase your savings by claiming credit card rewards, selling winning investments, and more.
By Sharon Epperson, CNBC.com
Your holiday shopping may be nearly done, but did you put yourself on the list? It's not too late. Take advantage of these smart tax moves before Dec. 31, and your biggest gift of the season could be the potential savings for months and years to come.
While the 'fiscal cliff' debate continues, financial planners and tax experts agree many Americans should plan now for higher tax rates next year and beyond. But by adopting these few tax strategies now, you'll be ready for many of the changes ahead that could impact your income and investments. Here are tax strategies worth considering now:
Convert a traditional IRA to a Roth account
Converting all or part of a traditional Individual Retirement Account (IRA) may be one of the best ways to lock in savings. Withdrawals from a traditional IRA are taxed at your federal income-tax rate. If your rate goes up, converting even a portion of your regular IRA to a Roth IRA now will likely lessen the overall tax bite in the long run.
What's also great about a Roth is that all future earnings and qualified withdrawals are tax free as long as you're at least age 59 1/2, and you've had a Roth IRA for at least five years. A Roth is a great way to lock in savings now, since you'll owe no more income tax in the future when you make qualified withdrawals in retirement.
The only hitch is you need to make sure you have the money to cover the taxes that you'll have to pay on any pre-tax amount that you convert to your Roth IRA. Also, if for some reason tax rates go down next year, you can change your mind. You have until Oct. 15, 2013, to undo the conversion and turn your Roth back into a regular IRA.
Sell winning investments
You should never make an investment decision based solely on tax implications. But if Congress does not extend current tax rates, long-term capital gains and dividend taxes could be going up significantly next year. Capital gains rates could rise from 15 percent this year for most tax payers to 20 percent in 2013. The top rate for dividends may jump to 39.6 percent next year. So if you're already planning to sell an investment to raise cash next year, you may want to sell a portion of your position now to take advantage of lower tax rates. So lock in your profits!
Accelerate income
If you want to make sure you take advantage of federal income tax rates you have now ? likely lower than they will be next year ? it also makes sense to accelerate your income before Dec. 31. If you earn a steady wage at your job, doing this can be difficult. But if you're self-employed, you should bill your customers now to make sure they make payments in December, rather than January.
Pay 2013 tuition now to get a big tax credit
College costs continue to rise, but there are a few ways to save ? at least for a few more weeks. The American Opportunity Credit is a great tax break for college students and their parents, providing credit for a maximum of $2,500 of qualified tuition and related expenses. But this is one of those tax measures that could expire at the end of the year as Congress looks for ways to cut the federal deficit. Claim your eligible education expenses while you can. Upgrade your laptop now to get to you the limit. If you still haven't reached the $2,500 limit, pay part of your 2013 tuition bill before Dec. 31 to qualify for the highest tax credit that's available.
Pay medical expenses before the end of the year
Anyone who normally itemizes medical expenses on their tax return should accelerate those expenses into 2012 if they can. Right now, medical expenses are deductible only if they exceed 7 percent of adjusted gross income (AGI). Next year the threshold jumps to 10 percent of your income (this only applies to people under age 65). Pay your January medical insurance premium in December to move this deduction to 2012. Any routine eye exams or dental visits should be moved up to December too. Paying with a credit card would give you the deduction this year and delay the actual payment until 2013.
Talk to a tax adviser and/or financial planner to see if these tax-saving strategies are right for you.
More money news:
Follow TODAY Money on Twitter and Facebook
?
barry sanders john scott jimmie johnson juan pablo montoya crash chardon high school shooting mark martin cleveland news
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.