Tax Moves to Make Before the End of Summer

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ShutterstockEven though April isn't exactly around the corner, summer is an excellent time to ensure you're on track with your taxes.
By Kimberly Palmer

We're halfway through the year, which makes it the perfect time to take a close look at your potential tax liability for 2014. You still have time to make adjustments to ensure you're minimizing the amount you owed. These four strategies might even make it easier for you to get money back from Uncle Sam once you file your taxes.

Bulk up your retirement contributions. You can contribute up to $17,500 to your 401(k) in 2014; for those 50 or older, the limit is $23,000. If you're nowhere close to that amount, consider ramping up your contributions to take advantage of tax-advantaged accounts. The same goes for Roth IRAs and traditional IRAs, where the maximum contribution amount is $5,500 (or $6,500 for those age 50 or older). If you want to max out your retirement savings, now is the time to start putting more money away. (You can contribute up to the 2014 limit until April 15, 2015.)

Delay deductions. Because tax increases are likely at some point in the future​, tax experts recommend saving any big deductions until next year, if possible. So if you're planning to make a sizable charitable contribution, for example, you might want to hold off for the sake of your tax bill. Similarly, if you're flexible about when you receive income, you might want to get as much in the bank before December 31 so it counts as income in 2014, before any potential tax increases.

David McKelvey​, a tax and business consulting partner at Friedman LLP, says top earners should also consider ways to reduce their taxable income so they can avoid the highest tax bracket. The highest income tax bracket rate, for those earning over $406,750​ (for individuals) and $457,600 (for joint filers), is 39.6 percent. If your income is near that threshold, he says, look for ways to reduce it, such as by delaying income or taking any available deductions.

Check you've been paying enough taxes. If you received income beyond your usual paycheck because of freelance work or income from a side business, you might end up owing a lot of money in April. You're also at greater risk if you got married this year and earn a similar, relatively high salary to your spouse. That's because of the so-called marriage tax penalty, which often means dual, high-earning couples owe more when they file taxes jointly than they did when they were single.

People who earn significant chunks of their salary in cash also need to make sure they're putting enough aside to pay the appropriate amount of taxes in the spring. The Internal Revenue Service keeps a close eye on people in professions that pay in cash, like waiters, by using formulas that estimate expected income. If you report less, you could be flagged for an audit, which is not something you want.

A big tax bill cannot only shock your budget, but you might owe the government additional fines, too. Check to see if you've been paying roughly the correct amount of taxes by reviewing your payroll stubs or other documentation. If you think you're going to owe money, prepare by starting to save now.

Keep track of important receipts. If you run your own business, are self-employed or have been spending money on educational costs to boost your career, then many of your expenses may be tax deductible. Make sure you put your receipts in an easy-to-find filing system so you can claim them when you file your taxes next year. If your employer offers flexible spending accounts for health care costs, be sure to keep eligible receipts for doctor visits, pharmaceuticals and other health-related costs. You often have until April 15 to file those claims.

McKelvey says since the threshold for deducting medical expenses went up from 7.5 percent of adjusted gross income to 10 percent for those under age 65, you can only deduce expenses that are greater than those minimums. (Those over age 65 are exempt from the increase until 2017.) ​For expenses under those thresholds, taxpayers can rely on health savings or flexible spending accounts, where contributions are pretax or tax deductible. (Just be sure to follow all relevant rules and limits, which are often available through your human resources department or account provider.)

Talking taxes might not be as fun as planning your summer vacation, but it can pay off just in time for next year's spring break.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.

10 PHOTOS
Top 10 Tax Cheaters of the Past Decade
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Tax Moves to Make Before the End of Summer
As if his $65 billion Ponzi scheme and serving a 150-year federal prison sentence for it wasn't enough, prosecutors in January 2014 revealed an IRS analysis showing Madoff didn't report $242.9 million in federal taxes from 1993 through 2007. Some of his former employees are also accused of having unreported income, one as high as $3.5 million.
The billionaire creator of Beanie Babies was sentenced in January 2014 to two years of probation for tax evasion on $25 million in income that he kept in Swiss bank accounts. Prosecutors say Warner earned $3.1 million in gross income in 2002 through a secret offshore account starting in 1996. He has agreed to pay $53.5 million, half of the amount he had in a secret UBS account. The federal government has pushed for high-profile prosecutions of Americans concealing income overseas, often in Switzerland.
Wilson, the self-proclaimed "First Lady" of tax fraud, was sentenced in July 2013 to 21 years in prison, according to an IRS list of top cases it prosecuted focused on identity theft. Wilson, then 27, of Tampa Bay, Fla., was also ordered to pay $2.2 million. Larry was sentenced to 14.5 years in prison and ordered to forfeit $2.2 million. From at least April 2009 through their arrests in September 2012, the pair fraudulently obtained tax refunds by receiving U.S. Treasury checks and pre-paid debit cards loaded with proceeds from false tax returns they filed in the names of other people without those persons' permission or knowledge, according to the IRS. Wilson boasted on Facebook that she was untouchable and spent lavishly, including $90,000 on an Audi A8 and $30,000 on her son's first birthday party.
In May 2012 the leaders of a multimillion dollar fraud ring were sentenced to 334 months (Dale) and 310 months (Grant) in prison and ordered to pay more than $2.8 million in restitution to the IRS. From 2009 through 2010 they filed false tax returns using stolen identities. Dale admitted to filing more than 500 fraudulent returns that sought at least $3.7 million in tax refunds, using the names of Medicaid beneficiaries that Dale obtained while working for a company that serviced Medicaid programs.
While not the biggest tax fraud case with a $2.1 million refund through a fraudulent 2011 tax return, she may have been the most creatively stupid. She falsely claimed $3 million in income using TurboTax, which issued her a prepaid Visa debit card with $2.1 million on it after her home state of Oregon approved her claim. She went on a $200,000 spending spree and was only caught after she reported the card lost. That's right: She was caught after reporting a $2.1 million debit card lost that she only got because she filed a fake tax return.
In February 2014, Hilton, 68, was among 13 people indicted in Los Angeles and Riverside counties in California for using stolen identifies to file fraudulent tax returns. Hilton's tax scheme sought nearly $2.9 million in fraudulent tax refunds for the 2008 tax year. Hilton owns two tax preparation businesses
The doomsday prophet from Cincinnati was convicted in June 2012 of five counts of tax evasion for not paying more than $300,000 in taxes between 2005 and 2010. He funneled money into a foreign bank account, lied on his tax forms and wrote off personal expenses as church expenses, a grand jury found. Weinland has wrongly predicted the world would end a few times.
The former chief administrator of the small California city of Bell, Rizzo was sentenced in April 2014 to 33 months in federal prison for tax evasion. He also faces 10 to 12 years in prison on 69 corruption counts. He was ordered to pay nearly $256,000 in restitution to the IRS after pleading guilty in January to federal counts of conspiracy and filing a false federal tax return. Rizzo paid himself as much as $1.1 million as Bell's top administrator before he was fired in 2010. Federal prosecutors say that from 2005 to 2010 he claimed more than $770,000 in phantom losses on his tax returns. 
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