Practical Year-end Tax Cutting Suggestions for Individuals

It’s not too late to consider tax moves that could reduce your 2013 taxes and get you in a better tax position for 2014. Here are some ideas:taxform 1040-resized-180

  • Be aware of higher tax rates. In 2013 the top tax rate has been increased to 39.6% for top bracket taxpayers (with taxable income over $400,000 for singles, $450,000 for married taxpayers). In addition, singles with income greater than $200,000 (or $250,000 for married taxpayers) will be subject to the new 3.8% surtax on net investment income. If you believe that you will be close to this limitation, consider making moves that will defer income into 2014.
  • Take advantage of tax-deferred accounts. All of the new tax rates and phase-outs are based upon adjusted gross income or taxable income. The most efficient way to reduce both of those items is to maximize contributions to tax-deferred retirement plans. If your employer offers such a plan, make maximum use of it (such as a deferred compensation plan). If not, see if you are eligible for your own deductible IRA. 
  • Consider a health savings account (HSA). Investing in an HSA gives you a current-year tax deduction, while providing a savings account to use to pay out-of-pocket medical expenses currently or in the future. An HSA is not a “use it or lose it” plan. Any funds in the plan can be used in future years. And be aware that you can fully fund your HSA up to April 15th of the following year.
  • Make charitable gifts from your IRA. Seniors age 70½ and older can make charitable contributions directly from their IRA. While this won’t be deductible, it can apply against your annual required minimum distribution (RMD), thereby lowering your adjusted gross income.

For guidance with your year-end tax planning, contact our office

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department regulations, we inform you that any U.S. federal tax advice contained is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

A Quick Summary of New Tax Law Signed to Avoid Fiscal Cliff

The American Taxpayer Relief Act of 2012 was signed by the President on January 2, 2013. The following is a quick summary of some of the more important provisions.

Payroll taxes. The most visible tax change in the new tax law is the 2% increase in the payroll tax. Everyone who draws a paycheck or has self-employment income will pay more in 2013. If you have $40,000 in wages in 2013, you will pay an additional $800 of payroll taxes over what you paid in 2012 on the same amount of wages.

Tax rates. The new law keeps the income tax rates the same as they were in 2012 for most taxpayers and makes them permanent. The new 39.6% tax rate will apply to single taxpayers making over $400,000 and couples making over $450,000.
Itemized deductions. The law puts limitations on the itemized deductions and personal exemptions for singles making over $250,000 and married couples making over $300,000.

Long-term capital gains.  The long-term capital gains rate will be 20% for singles making over $400,000 and couples making over $450,000. The prior 15% and zero rates will continue to apply to those in the lower brackets as they did in 2012.

Tax-free distributions to charity. The tax-free distribution to charity from an IRA by a taxpayer age 70½ or older is extended through 2013. Special rules apply to December 2012 and January 2013 distributions if the transfer is made to the charity by January 31, 2013.

Education. A number of education tax incentives were extended or made permanent in the new tax law.

Child tax credit. The new law makes permanent the $1,000 child tax credit.

The alternative minimum tax (AMT) has been permanently patched with a 2012 exemption amount of $50,600 for unmarried taxpayers and $78,750 for married taxpayers. The exemption amount will be adjusted annually for inflation.

Depreciation. On the business front, the 50% bonus depreciation and the $500,000 business expensing option are extended through 2013. There are also numerous business tax incentives extended through 2013.

There is much more in the new tax law. Please contact us for a review of your tax considerations under the American Taxpayer Relief Act of 2012.

Ten Tax Moves to Consider Before Year End

Hear those holiday bells? Soon they’ll be ringing in the new year. But before the clock strikes 2013, you have opportunities to reduce your 2012 federal income tax bill.

Here’s a grab-bag of suggestions to consider. In considering these potential savings for 2012, consider the currently scheduled end of the Bush tax cuts and how they will impact you.

We can help. If you have any questions or comments, please call Jack Craven at 516-280-8363  or email: Jack@JFCravenCPA.com.

Regards,

Jack Craven, CPA

1. Plan for the AMT. The annual exemption may change, but the usual triggers – items that can create alternative minimum tax liability such as certain large deductions – are the same.

2. Education incentives. Pre-paying qualifying expenses for the first semester of 2013 can get you a larger credit or deduction this year.
3. Family gifts. Take advantage of the expiring $5.12 million lifetime gift exclusion by sharing the wealth – and the tax burden – with lower-bracket family members.
4. Deferred plans. Maximize contributions to retirement plans such as your 401(k) or IRA, and fund other tax-favored accounts, such as health savings accounts.
5. Charitable contributions. Gifts to qualified charities made on your credit card by December 31 qualify for a deduction this year, even though you’ll receive the credit card statement in January.
6. Itemized vs. standard deductionShift expenses such as property taxes between years to “bunch” deductions and get the most tax benefit.
7. Disaster relief. Check for a potential refund, and consider amending your 2011 return to claim your loss if you live in a federally declared disaster area.
8. Investment cost basis. Understand your cost basis choices before capturing capital gains or losses, especially when selling mutual funds.
9. Temporary depreciation deductions. Assets purchased for your business or rental property before year-end may qualify for accelerated depreciation methods that are scheduled to expire on December 31.
10. Kiddie tax. Instead of transferring assets to your children to save for future education expenses, consider contributing to a 529 plan, which can limit exposure to “kiddie tax” on unearned income.

 

Contact us to discuss these and other tax-saving and planning ideas suited to your particular situation.