Ray’s Take: Some of us have already started gathering our records and receipts in preparation for completing our 2013 federal income tax forms. However, it’s not too soon to be thinking about 2014 taxes as well. Changes in the tax code – from bracket revisions to the 3.8 per cent investment tax – could have an impact on your withholding and tax bill a year from now.
Most taxpayers should keep a bit more of their earnings in their wallets. For example, a couple filing jointly with taxable income of $100,000 could save $145 over 2013. However, it will be a different story for filers with higher incomes and more investment income.
For example, that 3.8 percent investment income surtax on net income gained from investments will still be with us along with a 0.9 percent Medicare tax on earned income for joint filers earning over $250,000.
While the federal tax exclusion on annual gifts remains the same as 2013, the lifetime gift and estate tax exemption will increase to $5.34 million. Tennessee residents have said good-bye to gift taxes, but the inheritance tax is not gone yet.
Every year changes like these, and countless others, can confuse and confound those who prepare their own tax returns. If you weren’t aware of the changes that took place for tax year 2013, you could have a pleasant or nasty surprise this tax season.
It’s far better to plan ahead and to talk to a professional. Ask your tax accountant about your tax bracket and what you can do to reduce exposure. “Bracket management” will be the buzzwords for a while. It may be time for you to consider converting qualified plans into ROTHs. Don’t wait until this year is almost over to make the change. Get advice now, and be prepared later.
Dana’s Take: Our 12-year-old son is devoting a lot of thought to outsmarting the IRS when he is an adult. Until he figures that out, he and rest of us can count on paying up every April 15.
People tend to get in a panic over federal income taxes, rushing around to find all the documents and papers they need to file. Some of this is understandable, since you can almost always count on tax changes. But, why not make it a habit to be prepared?
As soon as you and your spouse get your last pay stubs of the year, start a file just for taxes. As those tax-related documents and end-of-year financial statements trickle in over the next month or so, just add them to the file. Everything will then be right where you need it for your tax preparer – whether it’s you or someone else.
This may not make paying income tax any easier to swallow, but anything you can do to make tax time less troublesome is certainly worth it.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.