The “fiscal cliff” legislation did not extend the 2 percent Social Security tax holiday most Americans have enjoyed for two years — that’s about $1,000 more withheld from your paycheck this year if you earn $50,000.
If you make more — up to $113,700 annually, which is the maximum income on which you pay Social Security — you’ll take home about $200 less a month.
So what can you do to offset that loss?
With the help of BusinessInsider.com and Intuit.com, here are a few tips that you may not have considered before the payroll tax holiday’s demise. Many of these tips are good to know for any tax year.
1. Adjust Your Tax Withholding.
If you normally get a tax refund every year, you can adjust your tax withholdings to get more take-home pay. You can use the IRS withholding calculator to help you figure the proper number of exemptions you should be claiming. Once you’ve figured it out, give your employer a new W-4. Fair warning: Don’t overdo it or you may end up having to pay the IRS in April. Your refund will be smaller or non-existent.
2. Reconsider Private Mortgage Insurance.
Private Mortgage Insurance, or PMI, is often mandatory for borrowers who put down less than 20 percent of the purchase price when they buy a home. But when you get to 20 percent equity – either by paying down your mortgage or appreciation – you might be able to stop paying it.
The Federal Reserve Bank of San Francisco estimates the average homeowner could save between $250 and $1,200 per year by eliminating PMI. You may have to jump pay for an appraisal. And you have to call your lender and ask about the process.
3. Consider Increasing Deductibles.
Raising your deductibles, or what you may have to pay out-of-pocket on your insurance policies could lower your monthly expenses substantially. A phone call to your insurance companies – home, health, and car – will help you determine how much you can save. Usually you can realize a 10 to 15 percent by raising your deductibles from $250 to $1,000.
4. Track Your Spending.
Financial sites like PowerWallet.com allow you to track your spending and know how and where your money is spent on a monthly basis. Use it to create a budget and stay on track. The site also tailors coupons and saving deals based on your purchase history.
It may be easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area. It’s worth the bother when your qualified expenses add up to more than the 2012 standard deduction of $5,950 for singles and $11,900 for married couples filing jointly.
Many deductions are well known, such as those for mortgage interest and charitable donations. However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. These deductions include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.
You can also deduct the portion of medical expenses that exceed 7.5 percent of your adjusted gross income.
6. Organize Your records.
Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.
If you really want to make tax season go smoothly, use a personal finance software program like Quicken throughout the year so you have easy access to all the information you need.
7. Contribute to Retirement Accounts.
If you haven’t already funded your retirement account for 2012, do so by April 15, 2013. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2013, you can wait until then to put 2012 contributions into those accounts.
8. Get Started on Preparing Tax Documents.
Here are suggestions from TurboTax:
1. Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.
2. Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important.
3. Collect receipts and information that you have piled up during the year.
4. Group similar documents together, putting them in different file folders if there are enough papers.
5. Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.