Top Five Year-End Tax Planning Tips

December 19, 2011 by  
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Whether you are looking at individual or business tax planning, consider the impact over a multi-year period—for both 2012 and 2013. The idea is to reduce the tax bill over both years, not just one.

Most taxpayers will save by accelerating deductions from 2012 into 2013 and will want to defer income to 2012. One caveat is if you owe Alternative Minimum Tax (AMT); if this is the case, you most likely want to reverse the above strategy.

To identify potential tax savings, consider the following tax planning tips:

#1 Itemized Deductions

If you itemize, consider bunching deductions in the current tax year. Good candidates are:

– State estimated tax payments. Pay the fourth quarter state income tax estimate in December 2011 rather than January 2012.

– Bunch medical expenses into the current tax year to hurdle the 7.5% Federal adjusted gross income (AGI) limitation.

– Bunch miscellaneous deductions into the current tax year to hurdle the 2% Federal adjusted gross income (AGI) limitation.

– Bunch charitable contributions into the current tax year. Also consider gifting appreciated securities instead of gifting cash (which is very tax-inefficient).

Example: Taxpayer has 1,000 shares of Teldar Paper with a cost basis of $10,000 and a fair market value of $50,000. By gifting the stock directly to charity the taxpayer avoids the long-term gain of $40,000 as opposed to selling the stock and then gifting cash.

– There are also additional benefits to not recognizing the $40k gain, such as reduced Federal Adjusted Gross Income (AGI).

– Several itemized deductions, such as medical and miscellaneous deductions, have to hurdle a %-of-AGI floor before they can be taken as a deduction.

#2 Capital Gains and Losses

Where do you stand with capital gains and losses in your taxable accounts so far this year?

– If you are at a gain position, do you have a capital loss carryforward from 2010? Is it large enough to offset your gains? If so, don’t do anything.

– If you are at a gain position and don’t have a capital loss carryforward, then consider harvesting losses in your account to offset the gains.

– If you do harvest losses, make sure you don’t buy back the identical securities within 30 days. If you do buy back the identical securities within 30 days, that is a violation of the “Wash Sale Rules” and you will not able to take the loss.

– Watch out if you buy a mutual fund late in the year. If it pays a dividend or has a capital gain distribution after your purchase, you will owe tax on the payout this year. To avoid this trap, buy the shares after the dividend record date.


#3 Retirement Savings Accounts

Consider maxing out your tax-advantaged retirement savings accounts such as a 401(k), 403(b), or IRA. Below are the 2011 contribution limits. For 2012 the limit for defined contribution plan is increasing to $17,000. Also, if you are turning 50 next year, don’t forget to utilize the “catch-up” provision to save an additional $5,500 in your 401(k), $1000 in your IRA or $2,500 in your SIMPLE plan.

Under age 50 $5,000 $5,000
Age 50 and older $6,000 $6,000
Under age 50 $16,500 $17,000
Age 50 and older $22,000 $22,500
Under age 50 $11,500 $11,500
Age 50 and older $14,000 $14,000

Important Year-End Deadlines

DECEMBER 31, 2012

– Last day to do a Roth conversion for 2012.

– Last day to make a charitable contribution for 2012. Contributions charged to a bank credit card are deductible in the year charged even though paid in a later year (Rev. Rul. 78-38).

– Last day to donate the Required Minimum Distribution (RMD) to charity.

JANUARY 16, 2013

–       Fourth 2012 estimated Federal tax payment (Form 1040-ES) is due.


The hardest thing to understand in the world is the income tax.




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Beverly, MA 01915

Tel: (978) 232-9990 ·