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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Simplified Home Office Deduction

Home Office Deduction

Beginning in 2013 there is a simplified way to take a home office expense for a portion of your home. This new ‘safe-harbor’ option greatly simplifies how to record valid expenses for business use of your home. Here is how it works.

You may opt to take your office space square feet times $5 and use this as a valid home office expense up to $1,500 (300 sq. ft.)

  1. This replaces the cumbersome allocation of valid home expenses like electricity, heat, depreciation, and other home expenses that are allocated by a % of the home devoted to your office space.
  2. You may still take property taxes, mortgage interest deductions and casualty losses as itemized deductions on your personal tax return. Better still, you no longer need to allocate these expenses between personal and business use.
  3. Your home office must qualify for the deduction using current home office standards in the tax code. Foremost among these is that your home office must be used regularly and exclusively by the business.
  4. The deduction may not be taken in excess of available business revenue.
  5. You may still take other qualified business expenses unrelated to the home. This “safe-harbor” calculation is meant to simplify the household expense allocation process only.

What you should know

  • The IRS estimates 3.4 million taxpayers used 1.6 million hours to calculate the home office deduction’s 43 line form to allocate their home office use.
  • When the IRS reviews these returns in the future, it hopes to save a tremendous amount of time and effort required in prior years to confirm the accuracy of the old home office allocation.
  • Since 2013 is the first year of this new provision, you will probably need to conduct the home office use calculation using the old method to ensure the safe-harbor opportunity makes sense for you.

Further Reference :

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction

 

 

 

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Tax Tips – Individuals Selling Their Home

Sold SignIf you’re selling your main home this summer or sometime this year, we have some helpful tax tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are some tips to keep in mind when selling your home.

  1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.
  2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.
  3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.
  4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.
  5. Use IRS e-file to prepare and file your 2013 tax return next year. E-file software will do most of the work for you. If you prepare a paper return, use the worksheets in Publication 523, Selling Your Home, to figure the gain (or loss) on the sale. The booklet also will help you determine how much of the gain you can exclude.
  6. Generally, you can exclude a gain from the sale of only one main home per two-year period.
  7. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.
  8. Special rules may apply when you sell a home for which you received the first-time home buyer credit. See Publication 523 for details.
  9. You cannot deduct a loss from the sale of your main home.
  10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

Further Reference:

IRS YouTube Videos:

IRS Podcasts:

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Tax Tips – Give Withholding and Payments a Check-up

Taxes Withholding

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

New Job. Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
Life Event. Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new Form W–4 anytime.
IRS Withholding Calculator. This handy online tool will help you figure the correct amount of tax to withhold based on your situation. If a change is necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

Estimated tax. This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
Form 1040-ES. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
Change in Estimated Tax. After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to recalculate your estimated tax.
Additional Medicare Tax. A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. For additional information on the Additional Medicare Tax, see our questions and answers.
Net Investment Income Tax. A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts.

Further Reference:

IRS YouTube Videos:

IRS Podcasts:

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Standard Deduction Amounts for 2011

Standard Deduction Amounts for 2011

Single: $5,800
Head of Household: $8,500
Married Filing Joint: $11,600
Married Filing Separately: $5,800
Qualifying Widow/Widower: $11,600
Dependent: $950-$5,800