2012 End Of Year Tax Deduction Strategies
Hello fellow Tax Payers,
It’s that time of year again, the Holidays; actually, it’s our favorite time of the year here at IncomeTaxCrew.com
We all know that everyone is looking forward to shopping season and buying gifts for their loved ones. We also know that everyone is worried about spending too much money during the Holidays as well. Soooo, our friends over at TurboTax have put together a nice little feature, THE TAXCASTER, to help you estimate how much your Tax Return will be next year. This way, you can see how much you’ll be getting back from Uncle Sam early and you can focus on the fun things, like buying gifts!!
Check it out here - TurboTax 2011 TAXCASTER Holiday Estimator
With the end of 2012 coming quickly, it is time to start thinking about what you can do in order to lower this year’s tax liability. Just be sure not to do anything that would increase your liability in 2012 by more than you stand to save in 2013!!
Here is the key - How much money do you think you will make in 2013? The same amount as 2012? More (hopefully…)? Less? Your answer is going to be the determining factor in order to do the best job possible in planning for the rest of 2012.
Some of the things you can do now:
* Sell off some of your “bad” or “Loser” Stocks which are currently being kept in taxable accounts
What is a “bad” Stock? Anything that is currently worth LESS than what you paid for them. If you have any of these type of stocks in taxable accounts (brokerage firms, etc) you can sell them off now and deduct your losses against any relevant earnings that you brought in from earlier in the year.
- For example, if you had a capital gain from another stock property earlier in the year, and you sell off the “bad” stock at a loss of $2,000; you can deduct the $2,000 loss against the earlier capital gain, therefore decreasing your tax liability!!
- Additionally, if you are married and filing jointly, you are permitted to deduct up to another $3,000 of net capital losses against your ordinary income! ($1,500 if you file married, separately)
- This counts for Salaries, Bonuses, Self-Employment income, etc!!
The important thing to remember here: Any EXCESS Losses are carried forward and puts you in a “tax savings position” for 2013 and longer!!
* Make a Charitable Donation from your IRA Account
- Recently, US Congress re-enacted a tax provision which permits you to complete a charitable cash donation out of your IRA account of up to $100,000
- You must be at least 70 years of age or older by the end of the year (2012)
- So long as the donation is completed “directly” from your IRA, they are considered a Qualified Charitable Distribution or QCD
- This is a tax liability benefit because OCD’s are valid and count as a “withdrawal” for the purpose of meeting the required minimum distribution limits which apply to traditional IRA’s. Therefore, taxes can be avoided by completing a qualified charitable distribution instead of a typical, taxable, distribution in order to meet RMD rules.
* Other IRA Actions - convert a traditional IRA into a Roth IRA
- The good thing about this - if your traditional IRA is worth a lot less now (like mine is) (because of the stock market crash), the tax liability/penalty is a lot less for converting it into a Roth IRA. The reason for this is because the transfer is considered a “non-deductible” contribution into your new Roth IRA account.
- After your done, ALL gains and subsequent withdrawals will be income tax FREE (Federal)!!
- This way, (so long as you meet the requirements) you can avoid paying the high tax rates on your withdrawals taken over the duration of your retirement years!!
- No Income Restriction either!
* Give to a Charity!!
Donate Appreciated Stock to Charity; Sell Losers and Donate Cash
- If you were lucky enough to make money in the stock market, and your stock shares have ACTUALLY APPRECIATED over more than a year - then this may be an option for you.
- Consider donating the appreciated shares to an IRS Approved Charity!
- These can be considered an itemized deduction (Charitable Contribution) at their full market value at the time the donation is made; & you will avoid a capital gain tax liability.
- Alternatively: you can sell of your “bad” stocks and donate the cash that is made. You are then permitted to donate 100% of the cash to a charity and retain 100% of the tax write off (loss because of “bad” stock) for yourself!!
- This must be itemized in order to gain the benefit.
* Pay 0% Tax Rate on Investment Income (Utilizing your loving Family)
- In 2012, the tax rate (Federal) on a long term capital gain/qualified dividend is 0%; however, this is only for dividends or gains that are located in the 10 - 15 % tax bracket.
- Typically, your tax bracket is going to be much higher and thus, you are not able to take advantage of the 0% tax rate.
- However, everyone has a few loved ones or family members that can help. Give your family shares of stock or mutual funds!! They are able to sell their shares and capitalize on the 0% tax so long as the gain is long term - aka a minimum of one year and one day.
REMEMBER - If the loved one that you give the shares or mutual fund interest is under the age of 24, there are tax rules that could require the individual’s earnings (the shares you gave him to sell) to be taxed at the tax rate of the parent. So make sure before you transfer or give interest to a loved one under the age of 24 because it would not be worth the effort!!
Until next time…