Year End Moves and Tax Planning Payoff At Tax Time
With the hustle and bustle of the holidays, it’s easy to forget that tax season is just around the corner. While the end of the year is fast approaching, there’s still time to make some year-end tax moves and basic tax planning that could benefit you at tax time.
Additional end of year income could push you into the next tax bracket. With the top tax rate at 39.6%, postponing income could lower your bill at tax time.
- Ask your employer if they can delay your bonus until January.
- Increase contributions to your tax-deferred employer retirement plan.
- Hold off on selling assets that will produce a capital gain.
- If you’re self-employed, wait until early January to send out invoices for end of year jobs.
- Gather your stock losses and sell away to offset your 2013 capital gains. Watch out for artificial harvesting to avoid the wash sale rules!
Cram Itemized Deductions
Maximizing your itemized deductions by squeezing in what you can, may have greater value by lowering your computed tax.
- Pay next year’s property taxes in December.
- Make January’s mortgage payment to deduct the interest.
- Make big purchases subject to sales taxes- this deduction may end after 2013.
- Donate household items in good used condition all at once.
Reduce Taxable Income
Reducing your income is the number one way to reduce income taxes.
- Self-employed individuals can setup a retirement plan.
- If eligible, pay the entire 2014 amount of deductible HSA contributions in 2013.
- Increase contributions to your employer’s health flexible spending account (FSA) to sufficiently cover expenses. Up to $2,500 of pretax dollars can be set aside in an FSA account. Watch out for use-it-or lose-it rules.
- Partnership or S corporation interests may require an increase in basis to deduct a loss.
Other strategies are intended to lessen your tax bill next year, in the years to come, or offer tax free benefits.
- Max out your last paycheck withholdings to avoid or reduce an underpayment penalty.
- Take required minimum distributions (RMD) from employer sponsored retirement plans if you turned 70 ½. Recalculate the RMD in subsequent years.
- If you’re feeling generous, you can give unlimited cash gifts up to $14,000 and excuse yourself from gift taxes.
- Considering a Roth IRA conversion from a Traditional IRA is best when your investment portfolio is beaten down by the stock market. If eligible, such a move could provide tax benefits in later years, but a conversion now would increase your adjusted gross income for 2013.
- Year end tax moves should always involve factoring in any effects on the alternative minimum tax.
While these possible moves can’t cover every situation, December procrastinations might make the difference between a large, small, or no tax bill at all.
Since 1997, The Watson CPA Group has been a team of Colorado Springs CPAs preparing individual and corporate tax returns for a reasonable fee range, and specializing in LLCs, S Corps, small business and corporate taxes, pilot and flight attendant tax deductions, per diem deductions, rental property owners, real estate professionals and expat tax clients.