Tuesday, November 26, 2013

Year-end planning that will help lower your tax bill

You don't have much time if you are interested in cutting your income taxes for 2013.
Some people can pay less income tax or get a bigger tax refund by using powerful, and totally legal, tax strategies by December 31st. No strategy, obviously, applies to all individuals and all situations. But let's do a little last-minute tax planning for those who might benefit.

Start by postponing or receiving income to 2014 if you think you'll be in a "lower tax bracket" for that year. Accelerate income into 2013 if entering an expected "higher tax bracket" in 2014. Maximize the value of tax deductions, too. Remember that a tax deduction usually saves you more taxes in a year with higher tax rates.

Up for a fat year-end bonus at work? Arrange to receive bonuses in January if your taxes will be lower next year. Self-employed taxpayers may defer income by waiting until 2014 to send invoices, under the cash basis of accounting, to customers. Accelerate payments, on the other hand, if you think your taxes will be lower in 2013. Other timing issues to mull over:

• Determine holding or selling appreciated assets, like real estate or securities.
• Evaluate postponing or completing a Roth IRA Conversion.
• Tap retirement distributions in a year with lower taxes.

Push Tax Deductions to a Year You Take Itemized Deductions: Use your standard deduction, a base income that isn't subject to tax, in a year that your in
come isn't high enough to itemize. Some itemized deductions may be limited or not fully allowed on a 2014 Schedule A.

Medical deductions have changed for 2013. Now you can only deduct medical expenses such as doctors, prescriptions, health insurance, and hospital stays if they exceed 10% of your Adjusted Gross Income, if you are younger than age 65.

Also think about:
• Purchasing a new car might allow you to add sales tax paid on the car to sales tax amounts from the IRS Optional Tables.
• Evaluating your Adjusted Gross Income, gross income, deductions and credits.
• Considering which bills, such as charitable and medical, to pay this year or postpone until next.
Review Stock Portfolio for Tax Losses by Year-end: Think about selling an under-performing investment to offset taxable capital gains from investment sales and capital gains passed through by your mutual funds. Watch wash sale rules, though. You're not allowed to deduct a current loss for identical securities purchased within 30 days of sale.

Usually holding capital assets for at least 12 months is the way to go, unless you have lots of capital loss to offset your gains. Beware, next year AFTRA has increased the highest rate for capital gains and dividends to 20 percent for many affluent taxpayers.

Also ponder:
Maximizing Energy Credits: Take the $500 maximum lifetime credit for qualified energy efficiency improvements to your principal home. Contemplate making an appropriate purchase by December 31, 2013, if you haven't utilized this deduction, before this lucrative tax credit expires.

Avoiding Alternative Minimum Tax Trap: Think you might be subject to the Alternative Minimum Tax in 2013? Consider paying state and local income taxes, real estate taxes, and miscellaneous itemized deductions in 2014 because they may increase your taxes next year if you get hit with AMT.
Smart Charitable Giving: Give appreciated assets such as stocks, subject to long-term gain, to an IRS approved charity. Get a tax deduction for the full value of the securities, not just what you paid. If you donate the shares before selling the stock, this helps you avoid the capital gains tax.

Read more here: http://www.bradenton.com/2013/11/26/4853728/smart-year-end-tax-strategies.html#storylink=cpy