It's not too late to cut
your 2012 tax bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $17,000 into
your 401(k) or 403(b) plan. Anyone 50 or older by December 31st
can put away an additional $5,500. Contributing to a 401(k) or
403(b) plan at work is one of the best tax shelters available to you
during your working years. (Think about
setting your 2013
retirement savings goals too.)
If you’re self-employed, consider setting up a Solo 401(k)
by 12/31. A Solo 401(k) plan lets a self-employed person hit the
$50k retirement plan max with less income than a SEP IRA, and also
allows a person aged 50 or older to put away $55.5k into a retirement
plan for 2012.
Take a look at your
withholdings and instruct your employer to withhold additional taxes
if you haven’t had enough taxes withheld during the year to avoid
getting hit with an underpayment penalty. (Take a look at the
IRS' Withholding Calculator to set your withholdings for 2013.)
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can
then be used to offset up to $3,000 of wages and other income.
Make sure to wait at least 31 days before buying back a security sold at
a loss, or the IRS will disallow the loss under the "wash sale" rules.
Consider selling your
investments that have increased in value if you are in the lowest tax
since the capital gains rate for you will be 0%, and this rule is slated
to expire on 12/31/12. You can then buy back those
securities, and the "cost-basis" will be the higher amount. This
strategy will save you taxes down the road when you sell these
securities. Just make sure that the capital gains don't push you
out of the 15% tax bracket, or you'll be taxed on those gains that fall
outside that bracket.
Send in your January 2013 mortgage payment early enough so it will be processed prior to
12/31/12. By sending in your payment a few weeks early, you can
deduct the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable
since "non-cash" contributions are deductible if you itemize.
Don’t forget to get a receipt. And you should make a
list of each
item donated, along with its condition, and snap a few photos as
well. Remember, only donations
of clothing and household items in "good condition or better" qualify
for a deduction. (To track what you donate, download our
Non-Cash Contribution Worksheet -
Excel Version or the
version, or use the
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2013. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation. (Use this IRS tool to
confirm a charity as legitimate.)
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and not
subject to the alternative minimum tax.
Pre-pay and pay off
your medical bills if your total medical expenses exceed 7.5% of
your income and you itemize.
Evaluate whether you'll
save any taxes by postponing 2012 income or deductions into 2013 or
by accelerating 2013 income or deductions into 2012.
Got questions about year-end tax planning? If so, please
contact the closest
HIGHER TAXES AS PART OF THE FISCAL CLIFF
There has been a ton written lately about the upcoming Fiscal Cliff. Check
out this article written by
Andrew D. Schwartz CPA
the November 10th issue of
Medical Economics (starting on Page 35) that details
the potential tax increases coming our way on January 1st:
is a list of all the changes that will be made
to the Tax Code if Congress and the President
aren't able to pass a Tax Act soon:
Personal Income Tax
rate increases to 15% tax rate
rate remains at 15% tax rate (but a portion increases to 28% tax rate
for people filing as Married Filing Jointly)
rate increases to 28% tax rate
rate increases to 31% tax rate
rate increases to 36% tax rate
rate increases to 39.6% tax rate
on Capital Gains and Qualified Dividends:
gains tax rate for taxpayers in the 10% and 15% tax brackets will increase
long-term capital gains tax rate for all other taxpayers will increase to 20%.
dividend tax rate at 15% will no longer exist. Dividends will be taxed at
your marginal tax rate.
phase-out on itemized deductions for income that exceeds certain thresholds
of personal exemptions once income exceeds certain thresholds is re-instated
Medicare tax (referred to as the Health Insurance or HI tax) imposed on
wages and SE income that exceeds $200,000 for single filers and $250,000 for
MFJ filers. (Payable by employees only. Employers are not required to match
Medicare surtax on net unearned/net investment income if MAGI exceeds
$200,000 for single filers and $250,000 for MFJ filers. Net investment
income includes interest, dividends, annuities, royalties, rents, passive
income, capital gains. The surtax is the lesser of:
Maximum Section 179 depreciation
reduces from $139,000 to $25,000.
Bonus depreciation expires.
Purchases of medical devises will be subject to a 2.3% excise tax on
purchase price of the equipment.
exemption (with an allowance of portability between spouses – when one
spouse died the unused $5M exemption of the deceased spouse would be added
to the exemption of the surviving spouse) reverts back to $1M (with no
tax rate changes to progressive tax rates with the highest rate set at 55%.
gift tax exclusion increased to $14,000.
college savings amount increased to $70,000 ($140,000 joint)
penalty relief (expending of the 15% tax bracket and standard deduction for
MFJ filers to be twice that of Single taxpayers).
care credit based upon $3,000 per child and $6,000 for two or more children
reduces to $2,400 and $4,800 respectively.
tax credit amount reverts from $1,000 to $500 and is no longer a
American Opportunity college tuition tax credit. (The Hope and Lifetime Learning Credits
exclusion from gross income for discharge of indebtedness on a principal
exclusion for employer-provided education assistance (with an annual max of
deduction for teacher expenses.
deduction for Mortgage Insurance Premiums.
deduction for state and local sales tax instead of state income taxes on
above the line deduction of up to $4,000 for qualified tuition expenses.
tax-free treatment of charitable distributions made from IRA’s of people over
the age of 70.5.
credits for plug-in vehicles and alternate fuel vehicles.
credits for energy efficient home improvements.
Wait and See:
the re-elected President and the new Congress let all these tax rules expires?
We will need to wait and see.
For 2012, the standard deduction for a single individual is $5,950 and
for a married couple is $11,900. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2012, the personal exemption is $3,800.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $110,100
for 2012, increasing to $113,700 for 2013.
The standard mileage rateis $.555 per business mile as of
July 1, 2011, up from $.51 per mile for the first six months of 2011.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $17,000 in 2012, increasing to $17,500 in 2013. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2012,
increasing to $5,500 in 2013. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2013 to make your 2012 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.