Year-End Tax Planning – Part III
By Steve Barlotta, CPA
In the last part of your year-end tax planning letter, we will focus on some tax-planning strategies that were not covered in our first two articles. I know most of you are rushing around and trying to get ready for the holidays, but I just want to leave you with some ideas before we head into 2014.
Bump Up Your 401(k) Contribution
For 2013, you can contribute up to $17,500 to a 401(k) plan, or $23,000 if you’re 50 or older. Remember these are pre-tax dollars, so think about talking to your plan administrator about making a one-time catch-up contribution if you have not already reached the maximum amounts.
Prepay Your State Estimated Taxes
I know the fourth payment on your estimated state income taxes are not due until January 15th. But, think about sending the money in before the year ends. This will increase your 2013 itemized deductions on your federal return but will decrease your 2014 deduction. Consider making this payment before year end if you expect 2014 income to be the same or lower in 2014, and you will not be affected by the alternative minimum tax in 2013.
Take Required Distributions From IRAs
If you own an IRA you must take annual required minimum distributions starting at age 70 1/2. You have until April 1 of the year after you turn 70 1/2 to take the first distribution. But after that, you must take your annual distribution by the end of the year or face penalties. Remember these distribution rules don’t apply to Roth IRAs.
If you own a non-spousal inherited IRA you must take your required minimum distribution by the end of the year, as well. Keep in mind this is true whether you own a traditional IRA or a Roth.
Sell Loser Stocks
If you have had capital gains throughout the year from the sale of stocks, consider selling some of your losing investments to lower your gain and possibly even generate a capital loss deduction. But, you can’t deduct more than $3,000 of capital losses in any given year. Also, look out for the “wash sale” rule, which says you can’t claim a capital loss on a stock if you buy it back within 30 days after the sale.
Make Yearly Gifts
You can make a tax-free gift to anyone up to $14,000 annually without eating into your life time exemption from gift or estate tax. A married couple can combine this annual exclusion to $28,000 if they give the gift jointly. Remember to make sure the transaction is completed by December 31st. That means the receiver of the gift must deposit or cash the gift by year end.
Utilize The Energy Tax Credit
The bad news is that the $1,500 credit for residential expenditures on items like windows and doors is no longer available. But a tax credit of up to $500 for residential energy property is still available if prior years’ credits were not taken.
