Year End Planning – NO FISCAL CLIFF!!!

The year is almost over, and this time of year we all start to think about closing this chapter and looking forward to a new 2014 and what it holds for us. Sounds nice, right? So why ruin it by thinking about taxes?

With the ATRA enacted January 1, 2013 (yes, I watched CSPAN on New Years’ Day!!), there is more certainty about future tax rates, etc. than we experienced last year.  That said, as with any year end, you can minimize your tax burden by making some moves before year end, including:

1. .Manage your gross income to minimize the new taxes enacted in January.  The new Medicare surtax “kicks in” if your modified AGI is $250,000 (joint filers), so if you have control over when to receive income, defer it until 2014 to minimize your tax liability.  The new higher individual rates are also dependent on your taxable income levels, so your advisor should carefully monitor your tax projection in 2013.
2. Get your house in order. Start by reflecting on the financials of your year and what transpired this year. What did you pay for or receive? Many deductions are hidden in regular activities, so think about how this year came together financially. Make a list to discuss with your tax preparer.
3. If you have investment or IRAs that are eligible for distributions, be sure to take the minimum by year’s end. There are often hefty penalties if you don’t.
4. Think about your investment portfolio and whether it makes sense to harvest capital gains or losses.  For example, if you have a capital loss carryforward from 2012, consider locking in gain on a stock to shelter it from taxation in 2013.
5. Accelerate deduction into 2013.  If you plan on making charitable donations, paying state tax, etc., consider whether it makes sense to pay by December 31 to capture the tax deduction on the 2013 return.  If you are subject to AMT, state and local tax payments should not be accelerated because they are disallowed for AMT purposes.
6. Defer income into 2014. If you can control when you are paid, consider deferring the income until 2014.
7. Do you have employee business expenses to report? A simple review of your expenses this year may reveal hidden deductions. Think about mileage, travel, meals and entertainment, even uniforms (if exclusive to the job).
8. The new higher individual rates are also dependent on your taxable income levels, so your tax advisor should carefully monitor your tax projection in 2013.

As always, you should consult with your tax advisor about opportunities to reduce your 2013 tax liability.

Samuel L. Hemmeter, CPA, MT