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135 Town & Country Dr
Danville, CA 94526
1914 W. Orangewood Ave
Suite 102
Orange, CA 92868
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In this article we would like to highlight some year-end tax planning strategies that can benefit you when it comes time to filing a 2013 tax return. There are a host of tax breaks currently available that might not be around next year.
For example, High-income earners have to take into account the 3.8% tax surtax on unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000. The surtax is 3.8% of the lesser of (1) net investment income which includes taxable interest, dividends, annuities, royalties, capital gains, rents and income from a passive activity, or (2) the excess of modified adjusted gross income over a threshold amount of $250,000 for joint filers, $200,000 for singles and $11,950 for trusts. The additional Medicare tax may require year-end actions.
We have compiled a checklist of actions based on current tax rules that may help you save tax dollars if you act before year end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. Please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make.
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Year-End Tax Planning Moves for Businesses and Business Owners
- Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000, and a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000 and expensing won't be available for qualified real property.
- Businesses also should consider making expenditures that qualify for 50% bonus first-year depreciation if bought and placed in service this year. This bonus write-off generally won't be available next year unless Congress acts to extend it.
- Review your new hires for 2013 to see if any of them can qualify your business for the work opportunity tax credit (WOTC). The credit is available for a percentage of wages paid to members of specified "target" groups.
- California offers a New Jobs Credit for qualified employers in the amount of $3,000 for each increase in qualified full-time employees hired in the current taxable year over the preceding year.
- Employ your child before the end of the year and shift income (which is not subject to the kiddie tax) from you to your child. Wages paid by sole proprietors to their children age 17 and younger are exempt from both social security and unemployment taxes.
- Make qualified research expenses before the end of 2013 to claim a research credit, which won't be available for post-2013 expenditures.
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Year-End Tax Planning Moves for Individuals
- Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding then buy back the same securities at least 31 days later.
- Make charitable gifts of appreciated stock. If you have appreciated stock that you've held more than a year and you plan to make significant charitable contributions before year end, keep your cash and donate the stock (or mutual fund shares) instead.
- Don't lose a charitable deduction for lack of paperwork. Charitable contributions are only deductible if you have proper documentation.
- If your employer offers a retirement savings plan, such as a 401(K), take advantage of it and increase your pre-tax contributions prior to year end.
- If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2013.
- Consider using a credit card to prepay expenses that can generate deductions for this year.
- If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year end to pull the deduction of those taxes into 2013 if doing so won't create an alternative minimum tax (AMT) problem.
- If you are a homeowner, make energy saving improvements to the residence such as solar water heating or solar electric property, energy-saving windows, energy-efficient heater or air conditioner, or extra insulation. You may qualify for a tax credit if the assets are installed in your home before 2014.
- If you are age 70½ or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee.
- Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan) if you have reached age 70½.
- If you turned age 70½ in 2013, you can delay the first required distribution to 2013, but if you do, you will have to take a double distribution in 2014 the amount required for 2013 plus the amount required for 2014. Think twice before delaying 2013 distributions to 2014. Bunching income into 2014 might push you into a higher tax bracket.
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These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.
Very truly yours,
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