By Cliff Ennico
Now that the holidays are over and you have (hopefully) recovered from your New Year’s hangover, it is time to start thinking about:
- getting your taxes in order for 2013;
- and planning for your 2014 tax bill.
First, the bad news: 2013 is over. It is simply too late to change anything that happened on or before December 31, 2013. Whatever happened (or didn’t happen) on or before that date, you are stuck with its tax consequences, for better or worse.
The good news is that there’s still a lot you can do (legally) to manage your 2013 tax bill and get ready for 2014. Here are some tips:
- Watch your checks. If someone paid you for work you did in 2013 and the check arrived in the mail – or if you received payment via PayPal — on or before December 31, you are required to report that as income for 2013, not 2014. Any checks or PayPal payments you receive now should be booked as 2014 income.
- Did you set up a business entity in 2013? If you set up a corporation or limited liability company (LLC) for your business on or before December 31, 2013, you will be required to file the appropriate tax form this spring even though the business didn’t make any money. For single member LLCs, that’s Schedule C on your Form 1040. For partnerships and multimember LLCs, that’s Form 1065. For corporations and S corporations, that’s Form 1120 or 1120-S (due March 15, NOT April 15). The good news is that if you incurred expenses in setting up the business, those can be claimed as deductions on your 2013 tax return. If the loss is big enough, it may be able to offset other income you had last year from your day job and other sources.
- Have you set up a retirement plan? Here’s some really good news. Even though the books are closed for 2013, you can still make contributions to your retirement plan (a Simplified Employee Pension or SEP, an individual retirement account, or a “solo” 401K) right up until April 15 and take the deduction on your 2013 return. Even better, you can set up a retirement plan now, make a contribution to it before April 15, and take the deduction on your 2013 tax return. Still even better, if you “go on extension” with your 2013 tax return, you can make the contribution up until October 15 (September 15 for corporations) and still take the deduction on your 2013 tax return. The only bad news: if you “go on extension” and tell the IRS you plan to make a contribution before October 15, you sure as Heck better make the payment on time to avoid penalties, interest and a possible audit.
- Time for 1099s, W-2s and K-1s. If you paid an individual or single member LLC more than $600 for services performed during 2013, you have until January 31 to send them IRS Form W-2 (if they were employees), 1099 (if they were independent contractors), or K-1 (if they were shareholders, partners or fellow members of an LLC). You cannot download an electronic form for these; you must still use the paper form and send a “carbon copy” to the IRS when mailing the original to the person you paid. If the Form is not postmarked by January 31, you will have to pay a penalty to the IRS of $50 for each Form that is late. Also, many people file their tax returns early, and they will hate it – I mean, really hate it – if they have to amend their 2013 returns to reflect a Form you sent them after the deadline.
- Calculate Your Monthly Escrow for Estimated Taxes. If you pay estimated taxes, now is the time to crunch the numbers and “fine tune” the amount you put into escrow each month to make sure there’s enough cash on hand to make the quarterly payments.
- Start Planning for 2014. Now that you’ve got 2013 under control, start planning for 2014 taxes. There are three major 2014 changes in the tax laws you need to know about:
- Medicare Surtax. Self-employed people who make more than $200,000 (for an individual) or $250,000 (for a couple) will be assessed an additional 0.9% for Medicare in 2014, on top of the existing 1.45% Medicare payroll tax and a 3.8% Medicare tax on unearned income (such as dividends, interest, capital gains and rental income).
- Medical Expense Restrictions. Taxpayers under the age of 65 who itemize their medical expense deductions will only be able to do so in 2014 if those expenses exceed 10% of their adjusted gross income (AGI); previously the “cap” was 7.5% of AGI.
- Obamacare Penalty. If you are not currently participating in a qualified or “Grandfathered” health care plan, you will have to pay a file of $95 or 1% of your income, whichever is higher, in 2014.
Cliff Ennico(firstname.lastname@example.org) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. Copyright 2013 Clifford R. Ennico. Distributed By Creators Syndicate, Inc. Follow Cliff: @cliffennico.