Taxpayers should act now to take advantage of IRS changes
By
Rick Rodgers, CFP
Send a link to a friend
[November 06, 2013]
Unlike last year, tax planning
for 2013 is not hampered by uncertainties over a looming fiscal
cliff. Unfortunately, there is always some uncertainty and a few
expiring provisions to warrant special attention by taxpayers.
|
Managing income taxes at year-end involves techniques designed to
address three issues: If a taxpayer expects to be in the same or
a lower tax bracket next year, it's best to defer as much income
as possible until after the year-end.
Accelerating or
deferring deductions: If a taxpayer's overall tax rate is
the same in both years, accelerating deductions achieves tax
savings this year rather than waiting for those tax savings to
materialize next year.
Take advantage of tax provisions
scheduled to expire at the end of 2013. There are several
temporary tax provisions that can only be used this year.
Tax planning begins by projecting income and deductions for the
year to determine your tax bracket and income thresholds that
trigger higher or additional taxes, or limit the effectiveness of
deductions. One of the impacts of the American Taxpayer Relief Act
of 2012, known as ATRA12, is the reintroduction of the Pease
limitation, which can greatly limit itemized deductions. Once a
taxpayer knows what his or her income taxes will look like, it's
time to evaluate which techniques will help the most.
![](http://archives.lincolndailynews.com/2013/Nov/06/images/ads/current/bonanza_sda103013.png)
Strategies to accelerate or defer income:
Taxpayers who participate
in 401(k), 403(b), most 457 plans or in the Thrift Savings Plan
can defer up to $17,500 this year. Taxpayers age 50 and older
can defer up to $23,000.
Harvest capital
gains or losses: Long-term capital gains are taxed at zero
percent for taxpayers in the 15 percent bracket. Capital losses
can be used to offset capital gains and reduce other income up
to $3,000.
Use the IRA.
Taxpayers age 59 1/2 and older can accelerate IRA distributions
in 2013. Contributions may be deductible depending on your
income level and whether you're covered by a retirement plan
through work. Taxpayers under age 59 1/2 can convert traditional
IRAs to Roth IRAs to accelerate income.
Health-care assistance: People with
health savings accounts -- available with some high-deductible
health insurance policies -- can save up to $3,250 tax-deferred
for an individual and $6,450 for a family. Those who are 55 and
older can save an additional $1,000. Flex spending contribution
limits are capped at $2,500 this year.
Strategies to accelerate or defer deductions:
The Affordable
Care Act, known as the ACA, raises the income threshold this
year to 10 percent of adjusted gross income for taxpayers under
age 65. The threshold remains at 7.5 percent for those 65 and
older. Taxpayers may need to prepare or defer medical bills to
lump expenses in a single year to get the deduction.
[to top of second column] |
![](http://archives.lincolndailynews.com/2010/Jan/07/images/ads/current/guzzardo_lda022609.png)
-
Gifts to
charities: Use a donor-advised fund, known as a DAF, to
maximize the tax savings from charitable giving. A DAF makes
gifting appreciated securities easier. The DAF can be funded in
tax years when the deduction will have the most impact.
Distribution to charities can be made at any time without tax
consideration.
-
Qualified charitable distribution:
This year only, taxpayers age 70 1/2 or older can choose to
direct up to $100,000 of their IRA-required minimum distribution
to charity. By doing so, the distribution does not show up as
taxable income, which can lower taxation of Social Security
benefits and help reduce other threshold levels to further
minimize taxes.
ATRA12 extended -- but did not make permanent -- several tax
incentives for individuals. Taxpayers should consider whether they
can benefit from these incentives this year and plan accordingly.
The following provisions are set to expire on Dec. 31 unless
extended again:
Taxpayers can choose between
deducting state and local income taxes or the sales taxes
they've paid through the year.
Deduction for
teacher expenses. Eligible educators can deduct up to $250
of any unreimbursed expenses.
Deduction of
mortgage insurance premiums. Payments of private mortgage
insurance premiums can be treated as deductible home mortgage
interest in 2013.
Discharge of
principal residence indebtedness. This can be excluded from
gross income this year.
Qualified charitable distribution.
Taxpayers can make tax-free charitable donations from their
required IRA distributions.
2013 is certainly an exciting year for tax planning. Start now in
order to minimize your tax bill in April.
![](http://archives.lincolndailynews.com/2013/Nov/06/images/ads/current/pest_control_bch010612.png)
___
Certified Financial Planner Rick Rodgers is president of Rodgers
& Associates, "The Retirement Specialists," in Lancaster, Pa., and
author of "The
New Three-Legged Stool: A Tax Efficient Approach to Retirement
Planning." He's a certified retirement counselor and member of
the National Association of Personal Financial Advisors. Rodgers has
been featured on national radio and TV shows, including "Fox
Business News" and "The 700 Club," and is available to speak at
conferences and corporate events (www.rodgersspeaks.com).
[Text from file received from
News and Experts] |