As April 15 approaches, many Americans are still scrambling to
get their tax returns together. But while meeting the tax deadline
is important, this is also a good time to be thinking about next
year's taxes.
As the 2012 tax season fades in the rear-view mirror, now is the
time to make a meaningful difference to your 2013 taxes. Here are
six tax-time questions to prompt you to explore the
possibilities.
1. Are you maximizing your tax-advantaged savings
opportunities?
For the 2013 tax year, the maximum amount you can contribute to an
IRA
rises from $5,000 to $5,500. Plus, if you are over 50, you can
contribute an extra $1,000. Contribution limits on 401(k) accounts
rise from $17,000 to $17,500, and some plans allow people over 50
to make an additional "catch-up" contribution of $5,500. So, even
if you've been making regular contributions to your
retirement plans
, you have the opportunity to boost those contributions --
especially if you turn 50 this year.
2. Have you prioritized your retirement
contributions?
People often can't afford to maximize their 401(k) and IRA
contributions, so you'll want to make sure they are properly
prioritized. In particular, if your employer makes any kind of a
matching contribution on the 401(k) plan, you'll want to make sure
you contribute enough to that plan to get the maximum matching
amount available before you direct anything to your IRA.
3. Are your taxable investments and tax strategy well
coordinated?
In completing your 2013 tax returns, did you find your
investment strategy yielded a high proportion of short-term gains?
If so, you may be in a high-turnover, trading type of strategy that
isn't always best for a taxable account.
Tax considerations
should rarely interfere with specific investment decisions (the
investment consequences generally outweigh the tax impact), but the
strategy in general should be suitable for a taxable account.
4. Do you have an effective record-keeping
system?
If you spent time scrambling to find records and receipts so you
could do your 2012 taxes, resolve to make it easier next year.
Whether it's putting paper copies in a designated folder or
scanning records into a mobile device, things will go much more
smoothly if you put things in the right place as they come in.
5. Do your payroll deductions line up well with your tax
liability?
Conventional wisdom is that you should avoid having a tax refund,
but with
savings account rates
near zero, this is less of a consideration. The main thing is that
neither your tax refund nor tax liability should be particularly
large. If either was too big this year, check your deduction
assumptions for 2013, and watch the monitoring points (such as your
investment gains and losses, savings account interest, etc.) that
may indicate whether your tax liabilities are on on track with your
assumptions throughout the year.
6. Are you paying the right amount for tax
preparation?
Shop around a bit. Given what's at stake, cheapest isn't always
best, but it is a competitive business that has been made more
efficient by technology. Make sure you are paying a competitive
rate for a service you respect.
A little thinking ahead might not only make your tax bill more
manageable, but also reduce the time and expense of getting your
tax returns prepared next year.