As my good friend Benjamin Franklin once said, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
We’re rapidly approaching April 15 and tax time is upon us. Nope, this isn’t a life insurance post. Although you really should go buy some good term life insurance. This is all about our least favorite person to give money to; Uncle Sam.
I love some of the benefits my tax dollars provide, like paved streets and a military that can crush anyone that dares to mess with us. Other things the government spends money on I’m not so fond of. And while paying taxes is important we certainly want to pay them exactly what we owe and not a penny more.
That’s why I’m glad there are some great deductions available in the tax code that help reduce our tax liability. You can deduct things like mortgage interest, childcare costs, business expenses and more. But most of those deductions come from expenses that you had in the actual tax year.
There is a way you can reduce your tax bill for 2013 now, even though the year is already over.
How to reduce your 2013 Tax Bill.
Putting positive rewards in place is always the best way to motivate people to do what you want them to do. Like dog biscuits. If you want your dog to roll over, tempt him with a treat until he rolls over. If you want your employees to come in to work 30 minutes early, tell them you’ll have breakfast waiting for them when they arrive. And if the government wants you to save for your retirement then they provided a nice little tax deduction for retirement savings.
You need an IRA.
If you’re under age 50, then you can contribute up to $5,500 to a traditional IRA (add an extra $1,000 if you’re over 50). You can make this contribution until April 15, 2014 and it will still count as a deduction on your 2013 tax return.
So if you’re out of debt, have a fully funded emergency account in place, and want to reduce your tax bill for 2013, go make a contribution to a traditional IRA.
Even better, that $5,500 contribution invested at age 30 will be worth $248,926.25 when you’re 70 if it averages a 10% return. So not only do you lower your tax bill this year, but you pick up an extra quarter of a million dollars in the process.
*My lawyer makes me say this. I’m not a CPA. I just happen to have read this part of the tax code. Seek professional tax advice for your specific situation.*