Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
Light up your tax return with year-end tax planning. The candles of the holiday season are glowing. Will you be after your tax return is completed?
Here are some December reminders and to do’s.
Reminder #1: Child, Or Family Member, In College?
1. Open a NY State 529 plan today. You are allowed a deductible contribution of up to $5,000 from each parent for the year.
2. As soon as your check clears, make a withdrawal from the plan.
3. Get an extra $800 to $1,000 refund on your 2013 New York State tax return.
4. Repeat every year while in college. (Don’t live in New York? Your state may have the same advantage. This applies to grandparents, as well as aunts and uncles, too.)
Reminder #2 – Required Minimum Distribution: If you are older than 70-and-a-half years of age, make sure you take your minimum distributions from your Individual Retirement Accounts (IRA) and pension plans. (Remind your parents.)
Reminder #3 – In The Stock Market? Analyze your profits and losses for 2013. Capital gains are not taxed if you’re in the 10 or 15 percent tax bracket. You can deduct up to $3,000 in capital losses in excess of capital gains.
Wash Sale Rules: If you plan to sell a security before December 31 to take advantage of a capital loss, don’t get caught by the wash sale rules. To make sure the loss is deductible, refrain from buying a substantially identical security during the 61-day period, which begins 30 days before you sell, and ends 30 days after.
Reminder #4 – Medical Flexible Account: How much money do you have in your medical flexible savings account? If you’re facing an end of the year “use it or lose it” deadline, consider what medical treatments and medications you can pay for with FSA money so you don’t waste your account contributions. Check out IRS Publication 502.
Reminder #5 – Do You Itemize? Consider paying these expenses before December 31:
- Real estate taxes are due by January 1, but pay them by December 31.
- Pay your January mortgage payment to deduct the interest this year.
- Pay your fourth quarter state/local estimated taxes
- Pay investment-related expenses, dues, and other miscellaneous expenses. Check out IRS Publication 529 for the full list.
- Make your charitable contributions of cash, clothing, and household items.
Cash and checks mailed by December 31 count as 2013 deductions, as do credit card charges you make by December 31. Donations of stock are deductible when you relinquish control. Allow extra time for stock transfers handled by your broker or a mutual fund company.
Reminder #6 – State Estimated Tax: Increase your withholding rather than increasing your estimates to avoid a penalty.
Loophole: No withholding? Take an eligible rollover distribution from a qualified retirement plan, increase the withholding, and rollover the distribution within 60 days.
Reminder #7 – A few Holiday Gifts Suggestions:
- Project: Penny Portrait
- A Gift for the Kids Wall: A framed share of stock from Disney to Tiffany
- Kids Night On Broadway – Kids (age 6-18) go free; adults pay in full.
- You haven’t seen Brooklyn until you take the Made in Brooklyn Tour
- Chamber Magic at the Waldorf-Astoria
Reminder #8: Self-employed? Considering a Keogh retirement plan? You must establish it by the end of the year to ensure that contributions for the 2013 tax year are deductible. Deductible contributions for 2013 can be made any time up to the filing deadline for your 2013 return. Also, maximize your 401(k) or 403(b) plan contribution.
Reminder #9 – Gift $14,000 Tax-Free by 12/31: To as many individuals as you like every year (including your accountant). No gift tax return; no deduction for you; no taxable income for the recipient. (Double for married.)
Reminder #10 – Itemized Deductions: If you’re trying to increase your itemized deductions for 2013 but you’re short of cash, pay with a credit card by December 31. You can then deduct the expenses on your 2013 tax return even though you pay your credit card bill in 2014.
Reminder #11 – Watch Congress: There’s not much time left for making moves that could affect your taxes for 2013. Little, if anything, will be done, but, hey…you never know.
Reminder #12 – Watch for these holiday scams: During the holiday season, fraudsters find their way onto the naughty list each year with clever new scams. Consumer authorities warn that the holidays offer fraudsters plenty of opportunities to prey upon unwary consumers. This year, be sure to keep your eye out for these “popular” scams and avoid becoming a victim:
- Gift Card Scams. Gift cards can be tampered with, especially in stores with large gift card displays. Try to purchase gift cards straight from the cashier or customer service representative.
- Fake Vacation Rentals. Fraudsters will often advertise property they do not own, and use personal information on a bogus rental application to commit identity theft. When booking a vacation rental, use a reputable realtor that you can meet with in person.
- Fake Holiday Jobs. Work-from-home job offers may appear to be a good source of extra cash during the holidays. However, if an employer asks you to make substantial payments up front for materials, or asks you for personal or financial information, then you could be a potential scam victim.
- Charity Fraud. Not every person asking you for a donation is working for a legitimate charity. Be sure to confirm that the charity exists, and avoid cash donations. Rather donate with a check made payable to the charity.
- Internet Shopping Scams. Online merchants may advertise unbeatable prices, but be wary. You may be required to purchase a large quantity of items to get the deal, and what you see may not be what you get. Get information and reviews about the merchant before placing your order.
Reminder #13 – Part-Time Job This Month? Did you get a part-time job to earn extra cash for the holidays? If you’re paid as a contractor instead of as an employee, remember that you’ll be responsible for income taxes due on the money, as well as any self-employment taxes.
One More Thing
Are you part of the One Percent? Year-end tax planning is not the only planning you need to do. When you exercise, eat right, put in extra effort at work, or take a class to improve your skills, it pays off in the long run. This holds true also in your finances.
You still have time to add just a little more to your retirement this year — maybe just one percent more. If your savings is two percent now, increase it to three percent, and a year from now, make it four percent of your gross salary. One day you’ll look back and thank your (early) self for getting you where you want, and need, to be at retirement.
If your salary is $40,000, and you receive a three percent / year raise, and save three percent — compounding at five percent yields $77,564 after 25 years. If, however, you boot your savings by one percent a year, you would have $379,927 after 25 years. Is $8 a week too much to save?
QUIP: The income tax forms have been simplified beyond all understanding.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.