2. Introduction
• Contrary to popular belief, tax planning is really a
simple task that should be undertaken each year.
Begin with anticipating your gross income for the
year as well as allowable deductions to determine
your tax bracket and income thresholds that will
either limit your ability to take advantage of
deductions and/or credits, or trigger higher and/or
additional taxes. Once you can estimate what your
income taxes will look like, you can then evaluate
which strategies will serve you best when its time to
file your taxes. Outlined in this presentation are
actions you can take to minimize tax liability.
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3. 4th Quarter Tax Planning Tips
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Know your tax rate. Although 2013 ordinary federal income tax rates
will stay the same, higher income individuals’ tax brackets have
increased from 35% to 39.6%. (The high-income individual tax rate is
higher than the corporate tax rate of 35%.)
Leverage itemized deductions. Alternate year-to-year between taking
the standard deduction with “bunching” miscellaneous itemized
deductible expenditures, medical expenses and other itemized
deductions.
Defer income. If you expect to be in the same or lower tax bracket in
2014, it is wise to defer as much income as possible to next year.
• Ask your employer to defer a bonus that may be coming your way
until 2014.
Time investment gains and losses. Selling appreciated securities
before year end may be a smart tax strategy.
• Long-term capital gains are taxed at 0% for taxpayers in the 15%
tax bracket. Capital losses can be used to offset capital gains and
reduce other income up to $3,000.
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4. • Take advantage of tax breaks. For those age 70 ½ make taxfree charitable contributions from your required IRA
distributions. Special rules apply.
• Use it or lose it. “Spend down” flexible spending accounts
before the balances expire. Contribution limits capped at
$2,500 this year.
• Calculate and estimate carefully. Increase the amount you
set aside next year in your employer’s health flexible
spending account if you set aside too little this year.
• Adjust elective deferral plans at work. Maximum deferral for
2013 is $17,500. This increases to $23,000 for taxpayers age 50
and over.
• New taxes in effect. Effective for the first time in 2013 are a
3.8% Medicare Investment Tax, a surtax on net investment
income and the 0.9% Medicare Health Insurance Tax, a payroll
tax on wages and self employment income. These taxes affect
high-income taxpayers.
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5. • Maximize tax credits, deductions and exclusions which will
sunset unless extended by an act of Congress. Among these
are:
• Make energy-saving improvements to your home or purchase
energy-efficient appliances;
• Above-the-line deduction for $250 unreimbursed, out-ofpocket expenses of grades K-12 teachers, instructors,
counselors, principals and aides;
• Choice between general sales tax deduction or deduction for
state and local income tax deduction;
• Above-the-line qualified higher education tuition and fees
deduction;
• Deduction for mortgage insurance premiums as qualified
home mortgage interest if AGI is not more than $109,000;
and
• Cancellation of principal residence debt can be excluded from
gross income this year if discharged because of change in
financial condition or decline in value of residence.
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6. • Note the new rules.
• Rules for home office deductions have changed allowing
for a more simplified option for a maximum standard
$1,500 deduction.
• Depreciation rules have changed resulting in many
refundable credits disappearing.
• Prepay expenses. Consider using a credit card to prepay
expenses that can generate deductions for this year.
• Increase withholding. If you expect to owe state and local
income taxes, consider asking your employer to increase
withholding of state and local taxes before year-end to pull the
deduction of those taxes into 2013.
• Accelerate purchases. Make big ticket purchases before year
end in order to assure a deduction for sales taxes on the
purchases if you elect to claim a state and local general sales
tax deduction instead of a state and local income tax
deduction. This choice won’t be available after 2013.
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7. • Familiarize yourself the Affordable Care Act. This
new legislation may have an impact on your tax
status and liability in 2014. Among other things,
• The Act raises the income threshold this year to 10%
of AGI for taxpayers 65 and under. You may need to
defer medical bills to lump expenses in a single year to
get the deduction.
• Mandate and requirement to have coverage or pay a
penalty.
• Greater of $695 per year up to a maximum of $2,085
per family or 2.5% of household income
• Phase in: $95 in 2014, $325 in 2015 and $695 in 2016
for the flat fee of 1% of taxable income in 2014, 2% of
taxable income in 2015, and 2.5% of taxable income in
2016
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8. Other Provisions
• The tax credit for new energy-efficient homes is set
to expire
• The monthly exclusion for transit passes and
vanpooling will change
• New capital gains and qualified dividends rate took
effect in 2013.
• Maximum rate on long-term gains increased from
15% to 20% and now also applies to dividends.
• Same-sex couples who are legally married will be
recognized by the federal government
• Able to file joint federal tax return this tax season
• Able to file amended returns for previous tax years
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9. Standard Deduction Increase
• For taxable years beginning in 2013, the standard
deduction amounts, adjusted for inflation, are as follows:
Filing Status
Standard Deduction
Married Filing Jointly and
Surviving Spouses
$12,200
Head of Household
$8,950
Single
$6,100
Married Filing Separately
$6,100
Aged or blind – (additional
$1,200
deduction)
Aged or blind, unmarried
and not a surviving spouse –
(additional deduction)
$1,500
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10. Current Tax Rate Table
Taxable Income
Tax Rate [Bracket]
Married Filing
Jointly
Head of
Household
Ordinary
Income
Short-term
Capital Gain
Long-term
Capital Gain
Qualified
Dividend
NIIT
Tax*
$0-17,850
$0-12,750
10%
10%
0%
0%
0%
8,926-36,250
17,851-72,500
12,751-48,600
15%
15%
0%
0%
0%
36,251-87,850
72,501-146,400
48,601-125,450
25%
25%
15%
15%
0%
87,851-183,250
146,401-223,050
125,451-203,150
28%
28%
15%
15%
0%
183,251-398,350
223,051-398,350
203,151-398,350
33%
33%
15%
15%
3.8%
398,351-400,000
398,351-450,000
398,351-425,000
35%
35%
15%
15%
3.8%
450,001-up
425,001-up
39.6%
39.6%
20%
20%
3.8%
Single
$0-8,925
400,001-up
3.8% of the lesser of net investment income or adjusted gross income in excess of $250,000 for MFJ ($200,000 for single or
head of household).
*
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11. Be Prepared
• The 16-day government shutdown has
contributed to a late start to this tax filing
season. The IRS expects to begin processing
returns no earlier than January 28 and no
later than February 4.
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