Make HSA Contributions. A calendar year taxpayer who is or becomes an eligible individual under the health savings account (HSA) rules for December 2013, is treated as having been an eligible individual for the entire year. So even if you only became eligible on December 1st, you can make a full year’s deductible-above-the-line contribution for 2013. If you make the maximum contribution, you can get a deduction of $3,250 for individual coverage, and $6,450 for family coverage. Those age 55 or older can make and deduct an additional $1,000.
Realize Losses on Investments. Some taxpayers have experienced paper losses on investments which they think will improve and want to continue owning. You may be able to realize losses on these investments for tax purposes and still retain the same investment position. This can be done by selling the investment and then buying back the same investment 31 days later. Or you can buy invest in another company in the same industry.
Accelerate Deductions. Charitable contributions and medical expenses are deductible when charged to a credit card account, not when the credit card bill is actually paid. So charge such deductible contributions and acelerate the deduction.
Solve Estimated Tax Underpayments. The new additional 0.9% Medicare tax and the new 3.8% surtax on unearned income may cause many individuals to face a penalty for underpayment of estimated tax. If you are facing a penalty for underpayment of estimated tax as a result of either of these new taxes or for any other reason should consider asking your employer to increase income tax withholding before year-end. Generally, income tax withheld by an employer from an employee’s wages or salary is treated as paid in equal amounts on each of the four estimated tax installment due dates regardless of when actually paid. Therefore, if you ask your employer to withhold additional amounts for the rest of the year, the penalty might be retroactively eliminated even though the withholding was not done equally over the four installment due dates.
Accelerate Big Purchases. The option for tax deduction itemizers to deduct state and local sales taxes in lieu of state and local income taxes will expire at the end of 2013 unless extended by Congress. As a result, if you are considering the purchase of a big-ticket item like a car or boat should consider doing so before year end and claiming a state and local general sales tax deduction instead of a state and local income tax deduction on your 2013 return.
Prepay Higher Education Expenses. The up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2013 unless Congress extend it. So you should consider prepaying in 2013 eligible education expenses for 2014 courses.
Lock in Free Gains. There is no tax on gain from the sale of qualified small business stock (QSBS) that is: (1) purchased after September 27, 2010 and before Janury 1, 2014, and (2) held for more than five years. Additionally, there’s a temporary alternative minimum tax (AMT) break. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less.
Be sure to take RMDs. If you have reached age 70- 1/2 you need to be sure to take your 2013 rquired minimum distribution (RMD) from your IRAs and qualified retirement plans. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2013, you can delay the first required distribution to 2014. However, if you take the deferral route, you will have to pay in 2014 both the amount required for 2013 plus the amount required for 2014.
Use IRAs to make Charitable Gifts. If you have reached age 70- 1/2 and own IRAs and are thinking of making a charitable gift, you should consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve significant tax savings.
Make Year-end Gifts. You can give any other person up to $14,000 for 2013 without incurring any gift tax. The annual exclusion amount increases to $28,000 per donee if your spouse consents to gift-splitting. Annual exclusion gifts take the amount of the gift and future appreciation in the value of the gift out of your estate, and shifts the income tax obligation on the property’s earnings to the donee who may be in a lower tax bracket.
Please call or email me if you want to disucss any of these tax saving moves in more detail at Jsenney@pselaw.com or 937-223-1130.
AND ONE MORE THING. For years, retailers who did not have a physical presence in a state did not collect sales taxes on purchases made in such state. But New York State and several other states have enacted laws that require retailers to collect sales tax internet sales to customers in such states. Recently, the US Supreme Court recently declined to rule on whether Amazon.com Inc and other online retailers with no physical presence in New York State must go on collecting sales tax. This court order means the New York law remains intact for now. If you have any questions about your liability to collect sales tax on sales to customers in other states, please contact me at Jsenney@pselaw.com or 937-223-1130.