December 4, 2013

Year-End Planning Tips for 2013

With end of year approaching, here are 10 tax-saving ideas to consider before the end of 2013.  We look forward to discussing which actions might benefit you.

  • QSBS There is no federal tax on the first $10M of gain from Qualified Small Business Stock purchased before the end of 2013 and held for five years.  Consider converting notes, options or LLC’s to stock, or closing on angel investments before the end of 2013 to take advantage of this unique opportunity.
  • The 3.8 % Net Investment Income (NII) Tax  The amount subject to the tax is the lesser of NII or the excess of modified adjusted gross income (MAGI ) over $400,000 for single or $450,000 for married filing joint.  NII includes dividends, rents, interest, passive activity income, capital gains, annuities and royalties- You may be able to avoid this 3.8% tax by shifting income between tax years, in an attempt to keep your MAGI below the threshold amount.
  • Roth Conversion/Recharacterization  The assets in a Roth IRA grow tax-free. Converting a traditional IRA to a Roth IRA is particularly attractive when the value of the assets is low. If you converted earlier in the year and the value of the assets has since decreased, you can recharacterize (i.e. undo the conversion) and then reconvert at a later time.
  • Realize Losses  Consider harvesting unrealized capital losses to offset any net realized capital gains. If you own securities that have become worthless or made loans that have become uncollectible, ensure that the losses are deductible in the current year by obtaining substantive documentation to support the deduction.
  • IRA Charitable Contribution  If you need to take a required minimum distribution from an IRA, a charitable gift made directly by the IRA trustee can fulfill this requirement. This can result in lower taxes, compared to taking a cash distribution followed by a cash donation.
  • RMD  If you are 70 1/2 or older in 2013, then you probably need to take a required minimum distribution from your IRA or 401(k) plan by year end. There are steep penalties for not doing this timely.
  • Annual Gifting  Remember to utilize the annual $14,000 gift tax exclusion. This can be made to an unlimited number of individuals and removes these assets from your estate.
  • Free Up Suspended Losses Disposing of a passive activity allows you to deduct otherwise suspended losses. Please consult with us to determine whether this is an option for you.
  • Charitable Contributions Charitable contributions can be made in cash, stock, real estate orother various assets.  They provide current tax savings (generally offsetting your highest taxed income first), can assist in asset diversification and are an opportunity to make a difference through philanthropy.
  • Bonus Depreciation  & Section 179 Deduction (For Businesses)  New depreciable property purchased and placed in service before the end of 2013 qualifies for 50% first-year depreciation.  The current Section 179 expensing limit is $500,000 and can be applied to qualified real property.