The fiscal cliff and “Taxmageddon” have been hot topics for financial analysts and CPA firms, but figuring out what it means for you and your personal or business finances can be a challenge. Due to a number of tax cuts and exemptions that expired or are due to expire in early 2013, many individuals and businesses will be scrambling to find ways to avoid a major tax increase this year. You may have already noticed a reduction in your take-home pay; that’s thanks to a 2 percent tax cut on payroll tax that expired on January 1. These changes are only the first step off the fiscal cliff, though, and more tax breaks are slated to be phased out in coming years.
Understanding the changing tax landscape and maintaining compliance while protecting your financial assets may take additional expertise and quick action throughout the year to ensure a less painful tax season in 2014. Take these steps today and create a parachute to carry you safely over future fiscal cliffs.
Prepare for the Affordable Health Care Act
Although the AHCA won’t take effect until 2014, it’s wise to plan for it now. Are you eligible for a healthcare subsidy, or could you face a penalty for insufficient coverage? Do you need to adjust your current level of coverage? Could a Flexible Spending Account help you cover your medical costs without incurring penalties? Your personal financial advisor can help you make these decisions, but acting on them sooner rather than later will give you more time to absorb potentially higher insurance costs.
Reevaluate Estate Plans
Estate taxes jumped as much as 5 percent as tax breaks ended last year, and revisiting your estate plans could be vital to protecting your investments throughout the year and into 2014. Sitting down with an estate tax planner can help you shelter more of your wealth while ensuring full compliance with rapidly changing tax laws.
Invest in Education
If you’ve considered going back to school, this may be the year to do it. Education tax credits were relatively untouched by lapsing tax breaks and scheduled increases. Moreover, education can also provide an avenue to more affordable healthcare, an important consideration for families with college-age children who will soon become ineligible for family insurance. Charitable donations to educational organizations may also be an effective way to limit higher taxes.
Track Storm Damage Expenses Carefully
Superstorm Sandy and winter storm Nemo cost individuals and companies throughout the Northeast billions of dollars. While insurance can help bear some of that cost, ongoing construction expenses for many have moved well into 2013. Keeping careful records of your storm expenses could allow you a tax break in 2014 as well as on this year’s return, so if you were affected by the storms, note all related expenses.