NEW YORK (MainStreet) —If your 2012 tax liability was higher than you expected, or your refund was leaner than you had hoped, there is still plenty of time to work towards a more favorable outcome in 2013. Sound planning can help cut down on the rake from the IRS and ensure that you do not leave any credits on the table. Here are a few ways you may be able to reduce your tax liability for 2013.
Also see: Dude, Where's My Refund
Contributing to an IRA or a 401(k) plan will help build a nest egg and reduce an individual’s tax liability. “Be sure you are maximizing your retirement savings opportunities,” said Annette Nellen, a tax professor at San Jose State University. “If possible, invest the maximum amount in your IRA or employer-provided retirement plan.”
The amount of pre-tax earnings an individual can contribute to a 401(k) plan rose from $17,000 for 2012 to $17,500 for 2013. “The dollar amount for contribution limits usually goes up each year,” Nellen said. “Check with your plan administrator to see if you need to do anything to increase your contribution amount.”
Also see: Tax Tip: Make Your IRA Contributions On Time
Individuals under 50 can contribute up to $5,500 to IRAs for 2013. For the 50 and over population, the maximum is $6,500. In some instances, traditional IRA contributions may be tax-deductible.
Cut and Run
Know when to throw in the towel. Sometimes your best play as the year winds down is to sell a stock that has gone deep into the red. It may not feel good to accept defeat from a morale standpoint, but the decision can help your bank account.
Remember that you can deduct up to $3,000 of net capital losses from your other income. If you have made a series of bad bets, net capital losses in excess of $3,000 can be carried forward to offset future gains and income.