PHOENIX -- Today we discussed the higher taxes we are seeing taken from our paychecks this year. But there are also other higher taxes that are on the horizon in 2014, as well.
For instance, we will see higher income taxes up to 39.5 percent, and we will also see an additional 3.8 percent tax on investment income as well as an additional 0.9 percent Medicare tax that is imposed on employees earning over $200,000 annually. Plus there will be an increased capital gains tax that ranges from 15-39.5 percent, depending on your income brackets, and type of gain you report.
All these new taxes will not hit the American taxpayer until 2014 when most people start preparing their tax returns.
So what can we do to help ourselves or reduce these taxes? Below are some suggestions that might help.
1. Remember that tax laws are passed by Congress. If you do not like the taxes you pay, write your Congress (Senate and House of Representatives). Believe it or not, their offices actually read each letter that is sent to them.
2. The best way to reduce your income taxes for 2013 is to contribute to a retirement account. No matter what kind you might have, (IRA, 401K, 403B, Simple IRA, SEP IRA, TSA, Deferred compensation) contributing to a retirement account will reduce your income taxes either now or in the future, since you do not pay income taxes on retirement contributions in the year that you make them in most cases.
3. Another sure way to actually reduce both Federal and state taxes, if you itemize, is to contribute to the 4 Arizona charities that actually give you money back. Contributions to the Arizona Private Schools, Arizona Public Schools, Organizations that help the Working Poor (i.e. - Food Banks, Salvation Army, Goodwill, Hope & a Future) and the Arizona Department of Veteran’s Services will not only count as a charitable contribution on your Federal tax returns, but also counts a state tax credit (this means the state of Arizona actually gives you money back) on your Arizona tax return. Remember this must be money given, not goods.
4. The only way to reduce your 2014 taxes is to plan ahead. You can no longer wait until the last minute to try to reduce them. Depending on your circumstances, you might want to wait to marry or divorce until the next year. Some situations work better than others in some cases, so be sure to see a tax professional early. Losing a dependent, such as a child who leaves the house to marry, join the military, or go out on their own will have an impact on your taxes, so be sure to seek advice on these events before they occur, if possible.
5. Finally, it’s important to note that we have less people paying into Social Security than ever before. This means that today there are about 6 people paying into the plan for every one receiving benefits. While in 1960, there were 20 people paying in for each one receiving benefits. And many people, who are receiving some compensation or income, are NOT paying into Social Security, such as those getting unemployment, welfare, retirement benefits, military benefits, and passive income like rental income, interest, and dividends. So when you hear about the rich not paying into Social Security, remember many lower income people also do NOT pay in either.
Robert F Hockensmith, CPA, PC, CPA, CGMA, EA, MA, MBA
6232 N. Seventh Street, Ste 110
Phoenix, AZ 85014-1854