If you are a high-income wage earner, you should have your tax preparer estimate your 2013 income tax liability. Several new taxes on unearned income (capital gains and dividends), the new phaseout of itemized deductions and the Medicare earned income tax may result in a significantly higher income tax liability for 2013.
If you were 70½ or older in 2013, make sure you have completed your required minimum distribution for 2013. Also, if you have an inherited IRA, regardless of age, you may be required to take a minimum distribution.
Everyone's situation varies, but generally consider accelerating deductions (such as charitable gifts) in 2013 and deferring income to 2014.
If you are making charitable gifts, consider transferring appreciated assets such as stocks held for longer than one year.
You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $14,000 in 2013 to an unlimited number of individuals, but you can't carry over unused exclusions from one year to the next.
For those of you who are eligible to set aside a portion of your compensation in a Section 125 Cafeteria Plan, consider increasing the amount you set aside for next year in your employer's health flexible spending account if you set aside too little for this year.
You may be able to save taxes this year and next year by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
If you have not already funded your IRAs for 2013, now would be a great time to do it. Depending on your income, you might be entitled to deduction for the contribution, which might help reduce your taxable income. We recommend that you make your IRA contributions at the earliest time you are able in order to take advantage of the compounding money benefit.
There are also a number of provisions that are scheduled to expire at the end of 2013, including:
- 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 after the 2013 tax year
- If you itemize deductions, 2013 will be the last year you will be able to deduct state and local sales tax in lieu of state and local income tax
- For individuals who are 70½ or older and subject to required minimum distributions, the Qualified Charitable IRA Distribution applicable to distributions made from IRAs directly to a qualified charity will sunset at the end of this year, unless Congress elects to extend them into 2014