Cut the Fat from Next Year’s Tax Bill Now

With your 2013 tax return just fading from the rearview mirror, your last thought is likely about your 2014 return.  Mid-year planning is particularly important for high-income taxpayers and anyone with substantial investment income. 

Here are a few reasons why:

·         A tax law that took effect last year imposes a new 39.6% marginal rate on taxable income over $400,000 ($450,000 for married couples)

·         Phase-outs for itemized deductions and personal exemptions included in last year’s law have increased effective marginal rates for taxpayers with adjusted gross income of $250,000 or more ($300,000 for married couples)

·         Under a provision in the Affordable Care Act, taxpayers with modified AGI of $200,000 or more ($250,000 for married couples) now face a 3.8% surtax on investment income

Protect your portfolio. With the surtax looming, it’s more important than ever to keep an eye toward the IRS when managing your investments.

Beef up tax-deferred accounts. Maxing out on contributions to your tax-deferred retirement plans is one of the most effective ways to lower both your taxable income and your AGI (to minimize the effects of phase-outs of deductions and personal exemptions).

Postpone IRA withdrawals. Congress is expected to resurrect a popular provision that allows seniors age 70½ and older to transfer up to $100,000 from their traditional IRAs directly to charity.

Prepare for Obamacare. Under the Affordable Care Act, taxpayers who don’t have health insurance in 2014 will have to pay a penalty and the IRS is responsible for collecting it.

Taking proactive steps now can help save you time, effort and money later on. 

To read the entire article, please visit www.kiplinger.com.