Lili’s Money Saving Year End Tax Tips
By: Lili Vasileff, CFP(r), CDFA(tm)
1. You CANNOT file married for the year if you are officially divorced as of 12/31/2012.
2. You and your ex-spouse MUST agree on who claims which deductions and which children as dependency exemptions.
3. If you receive alimony you MUST start paying quarterly taxes as estimated by your CPA.
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1. Defer Income
a. Ask employer to pay bonus next year
b. Sell any Investments with gains next year
c. Hold off taking any distributions from retirement plans or IRAs until January
d. Max out savings to retirement plans
CONVERSELY ACCELERATE INCOME IF NEXT YEAR TAXES WILL BE HIGHER
e. Including converting any traditional IRAs to ROTH IRAs
f. Sell any exercised incentive stock options to add to AMT income
g. Sell all investments gains at lower capital gains rate than next year
h. Reallocate to tax efficient investments and minimize taxable income subject to new 3.8 % tax
2. Accelerate Deductions
a. Prepay mortgage property taxes and mortgage insurance premiums.
b. Prepay state income taxes
c. Prepay tuition, student loan interest payments.
d. Pay alimony in advance for next year
e. Pay all medical bills (7.5 % AGI hurdle to 10 %) in 2013
f. Make gifts or charitable donations this year, especially with fiscal cliff looming that sharply cuts allowable amounts to $ 1 MM from $ 5 MM exemption
g. Bundle tax prep professional fees, and investment advisory fees to accumulate costs
3. Take Advantage of Expiring Tax Credits & Breaks
a. The American Opportunity Credit provides a refundable tax credit of up to $ 2,500 for undergraduate education that expires at the end of 2012
b. School Teacher Education Credit of $ 250 Child Tax Credit halved from $ 1,000 to $ 500
c. End of Payroll Tax Cuts
d. AMT Tax Fix will be erased
e. Tax breaks expire for those who refinanced mortgages to restructure and avoid short sales
MINIMIZING TAX LIABILITY SHOULD BE A YEAR ROUND PURSUIT AND NOT A YEAR END EFFORT