Depending on your income your 2013 taxes may be very similar to 2012, or you could be in for quite a shock. While we are all obligated to pay what we owe, no one is required to pay more than they owe. Consequently, year-end is a good time to see if there are any strategies you can adopt to reduce your 2013 tax bill.
The bad news is that for higher income earners in 2013 not only is there a new higher tax bracket (39.6%), a new Medicare Surtax on investment income (3.8%), but above certain income levels, personal exemptions are phased out and certain itemized deductions can be reduced by 80%. And by the way, business owners, the $500,000 Section 179 expense limit goes down to $25,000 in 2014.
So what can be done? Here are a few strategies:
- Use tax-loss harvesting to reduce capital gains. While it has been a good year in the US equity markets, you still might have a dud or two in your holdings. If you have an unrealized tax loss, consider selling in order to reduce your realized capital gains.
- If you are over 70 ½ and subject to RMDs (Required Minimum Distributions), this is the last year you can contribute up to $100,000 from your IRA directly to a qualified charity and not only receive the charitable tax deduction, but bypass the taxes on the withdrawal. Much more tax efficient than taking the RMD and then donating cash to the charity later.
- If your itemized deductions only slightly exceed the standard deduction, consider bunching deductions (paying certain 2014 deductible items in 2013) in one year so you can deduct more through itemization, and then the following year use the standard deduction.
Strategies such as these can help reduce a painful tax bill. Of course, please consult your tax professional before embarking on any of these strategies. If you would like to see more strategies and are in the Florence area, consider attending our year-end tax planning workshop on November 19th. If you are a medical professional, there is a specific workshop for you and your unique needs on November 21st.