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MID YEAR TAX PLANNING: TOP 6 TIPS

The so-called Bush Tax-Cuts are set to expire at the end of the year, which means the future of tax rates for businesses and individuals are extremely uncertain. But there are steps you can take right now to save money.

1) Accountants often recommend to their clients at the end of the year to hold up sending out invoices so that they collect the money in the next year, thus delaying the income and the tax. That advice may not be applicable this year. With the Bush tax cuts scheduled to expire at the end of the year, many taxpayers maybe paying higher tax rates in 2013. Obviously, that’s not certainty, but a lot of folks are betting on it. If this is the case, you would be better off to increase your taxable income this year and thus lower it next year when the rates are higher.

2) NO TAX ON INVESTMENT INCOME.

If you are in the 10 to 15% tax bracket, there is no tax on qualified dividends in long term capital gains this year. Again, that could change next year, but right now, the tax rate is zero. This would apply to married couples making less than $70,700 or a single tax filer making less than $35,350.

3) WILLING TO TAKE A RISK ON THE CAPITAL GAINS RATE?

As I mentioned in another blog, the capital gains tax rate is currently only 15%. However, there is a lot of debate and negotiations going on in Congress to increase that rate for next year. If in fact, the capital gains tax rate is increased next year, you would be better off to sell appreciated assets this year while the rate is only 15%.

4) DEDUCTIONS FOR EQUIPMENT & SOFTWARE

The Internal Revenue Code allows businesses to deduct or write off depreciation for new and used equipment and software. This year the maximum deduction is $139,000. However, in 2013 it drops down to a mere $25,000.

5) HUGE IMPACT IN THE STATE TAXES

If you have a lot of money or valuable assets that you want to transfer to the people you love, there is a law in effect right now that is going to expire at the end of the year that you need to know about. It is called the Unified Gift and Estate Tax Exemption. If you are interested, you will need professional help (as a side note, this is not the area of law that I practice in. I help specifically people who owe the IRS to negotiate out of their trouble). But for those of you who have this “problem” listen up, this Unified Gift and Estate Tax Exemption means that you can give away $5.12 million dollars without paying any gift/estate tax on the amount. But in 2013, the number drops down to 1 million. For people considering giving substantial assets or their family business to the next generation, the tax consequences can be huge.

6) CONSIDER BUNCHING DEDUCTIONS

Most people are aware of the fact that there is a standard deduction. If your itemized deductions are below that standard deduction in essence really does not do you any good. However, if those itemized deductions are close, than you might want to consider bunching up some of the expenditures from this year and next year to give you a bigger deduction than the standard deduction.

For example:
You can pay your 2012 property taxes and you can prepay your 2013 property taxes by December 31, 2012. You can then claim both the 2012 and 2013 property tax payments as a deduction. Of course, it is also possible to do the opposite, take the standard deduction in 2012 and then bunch the property tax payments in 2013 and take the deduction then. It just depends on which year is more important to you and your tax rate for each year.

Len Stauffenger limits his practice to helping taxpayers eliminate the IRS from their lives. He has been recognized as one of the top 5% of Attorneys in Ohio for the last nine years in a row. Call him at 1-888-582-4989