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Press Release

New York CPAs Offer End-of-Year Tax Planning Tips

By:
Alonza Robertson
Published Date:
Dec 12, 2012

NEW YORK (December 12, 2012) - The New York State Society of Certified Public Accountants (NYSSCPA) recommends these Year-end Tax Tips:

Get organized - Put your tax data together now. Round up all receipts and cancelled checks, such as those from charities; check your latest brokerage statement for year-to-date gains or losses; make a checklist of accounts to keep track of the Forms 1099s, if any, when they arrive; and get medical receipts and insurance reimbursement forms in order. Start organizing your files now, to avoid a last-minute rush. It is much easier to have the originals or to request replacements when you have time, instead of discovering at the last minute that you’re missing some item that prevents you from finishing your tax return. Be sure to gather information from any on-line accounts (banking or brokerage). You should make the appropriate copies of 1099s, etc. and keep them in a tax file, either paper or electronic. 
 
Consider shifting income into this year.  In most years, many accountants advise their clients to defer income into future years to defer income tax and to lower their effective tax rate.  However, with the expected tax rate increases certain businesses and taxpayers may want to consider accelerating income into 2012.
 
As a result of the sun setting of the Bush long term capital gains tax rates, the 10 and15 percent rates will increase to 20 percent after 2012 and the preferential qualified dividends rate will completely disappear, unless legislation is passed to extend these preferential rates. Add to that the additional 3.8 percent Medicare tax on investment income provided by The Patient Protection and Affordable Care Act (PPACA) commonly called Obamacare, that will apply to married couples who earn in excess of $250,000 or singles in excess of $200,000 on the lesser of the investment earnings or the excess over the threshold, it is clear that some taxpayers will experience a significant federal tax increase in 2013.
 
It is also important to review your portfolio to determine if now is good time to realizelong-term capital gains to take advantage of the preferential rates that are in effect through the end of 2012. Also note, if stocks are sold for gains, you can buy them right back, at the higher basis. Many people think they must wait 30 days to avoid a “wash sale”, but that only applies if the sale results in a loss. There is no ‘wash sale’ rule for gains. You’ll have less money to reinvest because you need to set aside money to pay your federal and state taxes. It is advisable that you consult your tax advisor and invest the time in preparing a tax projection in order to determine if these tax strategies will be beneficial for you to execute.
 
Purchase Equipment Now. If you are a business, purchase needed assets now to take advantage of 50 percent bonus depreciation and equipment write-off benefits which now stands at $139,000.  After 2012, the depreciation write-off, will decrease to $25,000 unless legislation is passed to increase this limitation. When your 2012 return is prepared your accountant can advise you what amount of depreciation election on the assets purchased will help you the most – taking it all/or a portion in 2012 or later years- as the accountant will likely have the benefit of knowing what the 2013 rates will be.
 
Maximize Your Retirement Plan Contributions in 401(k) Plans and Simple IRAs. With the tax rates likely to increase, you may consider converting funds from a traditional IRA to a Roth IRA. You should determine first if the conversion would lead to a change in your tax rate, and by how much. Balances in a Roth IRA grow tax free and distributions from Roth accounts are generally not taxable after a five-year holding period. Unlike traditional IRAs, there is no minimum distribution requirement for Roth IRAs. Roth conversions can be a very powerful planning tool for both income and estate taxes, but they are not for everyone. You should consult a tax adviser to understand all of the relevant factors before choosing a Roth conversion.
 
Amend 2011 Returns for Casualty Losses - Affected taxpayers in Superstorm Sandy federally-declared disaster areas have the option of claiming disaster-related losses on their federal and state income tax return for either this year or last year. Claiming the loss deduction on an original or amended return from last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving depending on other income factors. In many cases the full amount of uninsured loss won’t be fully known until 2013. Taxpayers still have the option to amend 2011 and may want to, depending on the tax rate in 2011 versus the rate in 2012. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements., IRS Guide or Goodwill Valuation Guide. If you donate noncash items, the total value must exceed $500 to one or more charities during the year. Use Form 8283 (Noncash Charitable Contributions) when filing your 1040 tax form.  You can also make a donation using your credit card that will allow you to move your deduction into 2012; the same rules apply for medical-bill payments. See below.
 
Charitable Donations – Don’t forget about donating your old household items and clothes to a not-for-profit organization.  Be sure to get an itemized receipt of your donations for tax purposes. To help estimate the value of your donation you can check out the Salvation Army Guide
 
Tax Credits – Don’t overlook some possible federal and state tax credits that may apply to you.  There  are many credits that are sometimes overlooked:
 
Adoption Credit
Child and Dependent Care Credit
Disabled Access Credit
Education Credits
Pension Plan Start-Up Credit
Retirement Savings Credit
Small Employer Health Insurance Credit
Work Opportunity Credit
 
Unpaid Medical Bills - Pay large unpaid non-reimbursable medical bills by December 31 if the total 2012 medical expenses will exceed the 7.5 percent of adjusted gross income floor (10 percent for the Alternative Minimum Tax (AMT). Medical expenses will need to exceed 10 percent of AGI in 2013 in order to be deductible, unless legislation is passed to decrease this limitation.
 
Pre-pay State Income and/or Property Taxes - Prepay the state income tax that is projected to be due by April 15th unless you’re in the AMT. Only the math will tell you if this is worth your while. Paying your state income tax estimate before December 31 accelerates your federal deduction. You can also pay property taxes early, make an extra mortgage payment (the interest portion is deductible), or opt to have dental work or elective (deductible) surgery before the end of the year. Using a credit card is the same as using cash—the deduction is taken in the year the charge is incurred, not the year you pay off the credit card balance. It is advisable that you consult your tax advisor and invest the time in preparing a tax projection in order to determine if these tax strategies will be beneficial for you to execute.
 
Donor Gift Tax Exclusions – An important estate tax saving strategy is to take advantage of the 2012 annual exclusion gifting of $13,000 per donee by December 31. Annual exclusion gifts transfer gift and estate tax free.  Additionally, there is a one hundred percent exclusion when you make direct payments for someone’s medical bills or tuition expenses. Both the medical and educational exclusions are allowed without regard to the relationship—so the recipient need not be a close relative or your dependent. The payments must be made directly to the medical care provider or the educational institution. You can make annual exclusion gifts, as well as pay educational and medical expenses each year (the annual exclusion will be $14,000 per donee in 2013), however, these are use it or lose it opportunities.