Last Minute 2013 Personal Tax Planning

Consider implementing the following strategies by December 31^st to save income taxes.  The income tax laws are now so complex that it is difficult to know whether any of these general recommendations will actually save you tax without undertaking a computerized tax projection.  You should consult your tax advisor before implementing these ideas.

1.      Harvest capital losses as necessary to reduce capital gains tax, and to lower the Obamacare tax on net investment income.  Be sure to avoid the “wash sale” rule that applies if you purchase substantially identical replacement securities within 30 days before or 30 days after the date of sale.

2.      Be sure that any year-end charitable donations are either delivered or mailed and postmarked by the 31^st.

3.      For those at least age 70 ½, consider using your traditional IRA to make a direct charitable donation.  This can satisfy your 2013 minimum required distribution and lower your overall income tax.

4.      Consider donating any long-term appreciated securities to charity.  You can claim a tax deduction equal to the fair market value without triggering tax on the capital gain.

5.      For those at least age 70 ½, and for those who have inherited an IRA, don’t forget to take your minimum required distribution by the 31^st in order to avoid a 50% penalty.

6.      Prepay state income tax unless you are subject to the alternative minimum tax (AMT) because taxes are not deductible for the AMT.

7.      Consider accelerating ordinary income into 2013 if you are subject to the AMT and may not be in 2014.

8.      Consider making a Roth IRA conversion if you are in a lower tax bracket this year.

9.      For purposes of gift and estate tax planning, don’t forget to use the $14,000 annual exclusion.  Giving cashier checks is advisable when cash gifts are made at year end to be sure that the gift is completed in the 2013 calendar year.

10.  Many upper-income individuals will suffer dramatic 2013 tax increases from the combination of income tax rate hikes and the start of Obamacare taxes.  Such taxpayers should consider estimating these tax increases in order to avoid surprises at April 15^th and to be sure sufficient cash is on hand to pay the additional tax on time, in order to avoid late payment penalties and interest.