It’s not too late. With the end of the year quickly approaching, there is still time to minimize taxes for 2013. Below are a few tax planning ideas and reminders to consider before 2013 comes to an end.
- Time your deductions to maximize the benefit.
For 2013, the standard deduction is $12,200 and $6,100 for married filing joint and single taxpayers respectively, and will likely stay the same for 2014. If your itemized deductions are normally close to these amounts each year, consider bunching your deductions in every other year to leverage the benefit of your deductions. For example, consider moving a charitable donation or state income tax payment normally made in early 2014 to the end of 2013. If cash is tight, payments can be charged on credit cards and are deductible in the year charged, not when payment is made on the card.
- Retain proper documentation for charitable contributions.
For cash donations less than $250, proof of payment (cancelled check or credit card receipt) or a written statement from the charity is sufficient; however, for cash donations greater than $250, proof of payment is not enough. A written statement from the charity must be obtained by the time the return is filed. The statement must show the amount of the donation and list any goods or services provided by the charity in exchange for the donation or specifically state that no goods or services were received by the taxpayer.
- Make a tax free IRA distribution to charity.
Taxpayers aged 70 1/2, or older, can exclude up to $100,000 of an otherwise taxable IRA distribution if transferred directly to a qualified charity. The taxpayer does not get to claim a charitable deduction, but the tax free treatment counts as a distribution for purposes of the required minimum distribution rules. This provision will expire at the end of 2013 unless Congress extends it.
- Consider the increased Section 179 limitations and 50% bonus depreciation.
For 2013, up to $500,000 of qualifying business equipment (new or used) can be deducted under Section 179. In addition, first-year bonus depreciation equal to 50% of the cost of new qualifying additions (reduced by any Section 179) can be claimed. Unless extended by Congress, the Section 179 limitation drops to $25,000 in 2014 and 50% first-year bonus depreciation will expire.
- Plan for 2013 tax rates.
The highest individual tax bracket increased to 39.6% for 2013, which means that higher-income individuals will likely see their taxes go up. Project your taxes for 2013 and see where you stand. If it looks like you are going to owe, consider increasing your federal withholding from now through the end of the year to minimize or eliminate any underpayment penalty.
- Be mindful of Alternative Minimum Tax (AMT).
What may seem like a great idea for regular tax purposes may create or increase a problem for AMT purposes.
We hope you find this information valuable. As always, we are here to help. If we can provide assistance or answer questions regarding estate planning or any other topic, please feel free to contact us at 314.862.2070.
Douglas M. Mueller, CPA
Download a printable PDF.