Year End Tax Moves

It’s That Time Again: Year end Tax Moves

While 2013 will be full of surprises as new tax laws are felt for the first time, there are still opportunities to reduce your tax obligation now and into next year. Here are some ideas worth looking at.

1. Make effective use of capital gains and losses.Remember short-term capital gains (assets held less than one year) have a maximum tax rate of 39.6% while the maximum long-term capital gain tax rate moves to 20%. Plus there is a potential bonus Medicare tax of 3.8% if your income exceeds $200,000 single and $250,000 married.

Action to take:

  • Net capital losses against short-term capital gains if possible. Also remember you can net up to $3,000 in excess capital losses against ordinary income.Consider maximizing your child’s unearned income potential prior to the impact of the “kiddie tax” (usually up to $2,000 of unearned income can be taxed at your child’s rate).
  • Review your portfolio and consider the appropriateness of taking long-term gains now versus holding the investment.

2. Last minute charitable donations.Now is the time to finalize your charitable donations. Remember you must always have a receipt (cash donations are no longer deductible without one) and only donate non-cash items in good or better condition. Donations of $250 or more also require an acknowledgement from the charitable organization.

Action to take:

  • Make any last minute donations and collect all applicable receipts.
  • Consider donating appreciated stock to gain additional tax benefits. If you are considering this alternative, it is always best to seek qualified advice prior to making this donation.

3. Fund your retirement accounts.Remember you can still make donations to qualified retirement accounts. Some accounts, like Traditional IRAs and Roth IRAs allow making contributions through April 15th as long as you qualify.

Action to take:

  • If possible, fund your accounts up to the maximum allowable. Don’t forget to take advantage of the catch-up provisions if you are age 50 or over.
  • Consider making contributions this year versus next to minimize your taxable income.

4. Run through other year-end checklist items.

Action to take:

  • Take Required Minimum Distribution from retirement accounts if you are over the age of 70 1/2.
  • Rebalance your investment portfolios as necessary
  • Review any medical and dependent care spending accounts to ensure you do not lose any unspent funds
  • Make contributions to your retirement savings accounts, especially if you are self-employed
  • Consider last minute retirement account conversions, if appropriate
  • Consider donating appreciated stock versus writing a check to a favorite charity
  • Estimate your tax liability and make any required estimated tax payments
  • Make any final gift payments while being aware of the annual gift giving limits
  • Start collecting and organizing your tax records

As a final note, please consider that the unsettled atmosphere in Congress is sure to result in additional tax changes in 2014. So stay alert to those that may impact you.

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