3 Last-Minute Tax Tips

A quick reallocation here and a receipt there can add up to a sizable refund ... even with a short clock left

We’re down to the last few weeks before April 15, the day more commonly known as “tax day,” among a few other colorful descriptions that are best not printed.

last-minute-tax-tipsIf you haven’t filed your tax return yet, chances are good that you’re not expecting a big refund. But it’s not too late to do a little last minute tax planning, and you might be surprised by how much a few tax tips can lower your tax bill or — hope springs eternal — actually secure a decent-sized refund.

Let’s take a look at some tax tips that can keep a little more cash in your pocket this April:

Last-Minute Tax Tips: Contribute to an IRA or HSA Plan

last-minute-tax-tips-iraWhether you have a longstanding IRA, recently rolled over your 401k into an IRA or have an HSA plan, this is a great place to start.

For tax year 2013, you can contribute $5,500 to an IRA or Roth IRA and $6,500 to either if you are age 50 or older. The Roth IRA, as a general rule, is a better long-term financial planning vehicle. But if you’re looking to take a dent out of your tax bill today, you’ll want to contribute to a traditional IRA, as the Roth offers no tax break in the year of the contribution.

How much can you save by making a contribution? It depends on your tax bracket, but let’s consider an example. If you’re filing as a married couple with a combined income between $72,501 and $146,400, you fall in the 25% marginal tax bracket. Contributing $5,500 will mean $1,375 in tax savings. Contributing a combined $11,000 will save you $2,750.

The same goes for Health Savings Account (HSA) contributions. If you buy your own health insurance and it is HSA-compatible, an HSA can be thought of as something like a “spillover” retirement account if you have already maxed out your IRA or 401k. And unlike IRAs — in which your ability to take a deduction can be phased out or eliminated if you already contribute to an employer 401k plan — HSA accounts have so such conditions.

In 2013, an individual policyholder can contribute a maximum of $3,250 to an HSA, and a family can contribute $6,450.

Though hardly a revolutionary idea, parking cash in an IRA or HSA is a last-minute tax tip that works.

Last-Minute Tax Tips: Child Care Expenses

Source: Flickr

Next on this list of tax tips are child care expenses. If you have kids and you pay for daycare, mother’s day out or for the services of a nanny, tally up what you paid in 2013. It could give you a nice tax credit.

The Child and Dependent Care Credit can seem a little complicated at first, but I can sum it up like this. If you pay for childcare expenses so you can work outside the home, $3,000 in expenses for the first child (or a total of $6,000 in expenses for two or more children) can be used to calculate the credit. The $3,000 (or $6,000) is multiplied by a factor that varies by income. For example, if your household’s adjusted gross income is more than $43,000, the factor is 0.2. (Don’t worry, popular tax programs such as TurboTax will make these calculations for you.) The factor is greater the less your income is.

So, for a family with two or more dependent kids, the tax credit would be calculated as $6,000 * 0.2 = $1,200.

It’s not uncommon for parents to pay tens of thousands of dollars in child care expense, so it can be frustrating that the amount used in the credit calculation is capped at $6,000. Still, a $1,200 reduction in your tax bill is nothing to laugh off, particularly considering that you were going to be making these expenses anyway.

A few things to note: To qualify, your kids must be under age 13, and the expenses must legitimately be used to allow a parent to return to work. For example, if a family has a stay-at-home mom who is not gainfully employed, they would not be able to apply any preschool or early development classes to the credit.

Also, only expenses you pay for yourself are eligible for the credit. Employer-provider care actually reduces the credit, though it also reduces your taxable income. If you have any doubts, talk to your CPA.

Last-Minute Tax Tips: Check for Donations

Source: Flickr

For one final last-minute tax tip, dig through your bank statements and receipts for any donations you made to charities last year. Whether it was a check you left in the offering plate on Sunday or a gift you gave to your university or the local homeless shelter, taken in total, they could amount to a good-sized deduction.

Remember: To write off any charitable contributions, you have to itemize. Often, if you have a home mortgage, you will pay enough in mortgage interest and other home-related expenses to surpass the standard deduction. In 2013, that amounts to $6,100 for an individual or $12,200 for a couple filing jointly.

It’s also important to keep good records. Larger charities will usually send you a statement at the end of the year summarizing your donations. But smaller charities often won’t, so you’ll want to keep a copy of your bank or credit card statement or a receipt.

Cash donations are pretty straightforward, as are donations of stock or other items with a listed market value. Donations of clothes or personal items can get a lot more complicated because the “value” of the items in question can be somewhat subjective. TurboTax and other mainstream tax programs will offer guidance, but as a note for the future, I recommend taking a photo of any clothes or personal items donated to keep for your records. In the event you are audited, they can add support to your estimated values.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.

Article printed from InvestorPlace Media, https://investorplace.com/2014/03/last-minute-tax-tips/.

©2019 InvestorPlace Media, LLC