Year-End Tax Planning

As the end of the 2013 tax year approaches, set aside some time to evaluate your situation. Here are some things to keep in mind as you consider potential year-end tax moves.

As the end of the 2013 tax year approaches, set aside some time to evaluate your situation. Here are some things to keep in mind as you consider potential year-end tax moves.

1. The tax landscape has changed for higher-income individuals

This year a new 39.6% federal income tax rate applies if your taxable income exceeds $400,000 ($450,000 if you're married and file a joint return, $225,000 if you're married and file separately). If your income crosses that threshold, you'll also be subject to a new 20% maximum tax rate on long-term capital gains and qualifying dividends (last year, the maximum rate that applied was 15%).

That's not all--you could see a difference even if your income doesn't reach that level. That's because if your adjusted gross income is more than $250,000 ($300,000 if you're married and file a joint return, $150,000 if you're married and file separately), your personal and dependency exemptions may be phased out this year, and your itemized deductions may be limited.

2. New Medicare taxes apply

Two new Medicare taxes apply this year. If your wages exceed $200,000 this year ($250,000 if you're married and file a joint return, $125,000 if you're married and file separately), the hospital insurance (HI) portion of the payroll tax--commonly referred to as the Medicare portion--is increased by 0.9%. Also, a 3.8% Medicare contribution tax generally applies to some or all of your net investment income if your modified adjusted gross income exceeds those dollar thresholds.

3. Don't forget the basics--retirement plan contributions

Make
sure that you're taking full advantage of tax-advantaged retirement
savings vehicles. Traditional IRAs (assuming that you qualify to make
deductible contributions) and employer-sponsored retirement plans such
as 401(k) plans allow you to contribute funds pretax, reducing your 2013
income. Contributions that you make to a Roth IRA (assuming you meet
the income requirements) or a Roth 401(k) plan are made with after-tax
dollars, but qualified Roth distributions are completely free from
federal income tax. For 2013, you can contribute up to $17,500 to a
401(k) plan ($23,000 if you're age 50 or older), and up to $5,500 to a
traditional or Roth IRA ($6,500 if you're age 50 or older). The window
to make 2013 contributions to an employer plan typically closes at the
end of the year, while you generally have until the due date of your
federal income tax return to make 2013 IRA contributions.

4. Expiring provisions

A number of key provisions are scheduled to expire at the end of 2013, including:

  • Increased Internal Revenue Code Section 179 expense limits and "bonus" depreciation provisions end.
  • The
    increased (100%) exclusion of capital gain from the sale or exchange of
    qualified small business stock (provided certain requirements,
    including a five-year holding period, are met) will not apply to
    qualified small business stock issued and acquired after 2013.
  • This
    will be the last year that you'll be able to make qualified charitable
    distributions (QCDs) of up to $100,000 from an IRA directly to a
    qualified charity if you're 701Ž2 or older; such distributions may be
    excluded from income and count toward satisfying any required minimum
    distributions (RMDs) you would otherwise have to receive from your IRA
    in 2013.
  • The above-the-line deductions for qualified higher
    education expenses, and for up to $250 of out-of-pocket classroom
    expenses paid by education professionals, will not be available starting
    with the 2014 tax year.
  • This will also be the last year you'll
    be able to elect to deduct state and local sales tax in lieu of state
    and local income tax if you itemize deductions.If you have any questions about this article, stop by or call your FineMark Office. We are always happy to help.

If you have any questions about this article, stop by or call your FineMark Office. We are always happy to help.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011-2014.