Year-End Tax Planning
Five ways to begin preparing for April 15.
If the word "taxes" immediately calls to mind April, try fastforwarding your calendar by a few months and taking a closer look at your tax picture before the end of December. In a hotly contested election year, it's difficult to know for certain what changes may be ahead for taxpayers in 2013. Yet while it's vital to speak with your tax professional before making any decisions, here are some ideas that could help you get shipshape, taxwise, for the coming year.
Ramp up your retirement savings
Retirement savings plans such as 401(k)s that let you contribute pretax money can lower your bill come April and help provide a fulfilling life after you leave your career.1 But keep in mind that you will pay tax on the withdrawals later on, so consider balancing those plans with a Roth alternative that allows you to withdraw money tax-free in retirement. [See related article, "Avoid Common Retirement Pitfalls"]
If you've been planning on making any significant equipment purchases, doing so before the end of the year may give you a deduction to help offset your income. Accelerated depreciation during the first year of purchase may add to your deductions. Ask your tax professional whether this applies to the equipment you anticipate buying.2
Attend a conference
Another way to improve your practice while adding to your deductions could be attending a professional conference before December 31. A tax-deductible trip before the end of the year may lighten your burden come spring, while it sharpens your skills and keeps you current on the latest developments.
Sell investments judiciously
Investment portfolios inevitably contain certain stocks or other securities that just don't seem to be performing year after year. If 2012 looks like a year when you'll be facing significant capital gains from other investments, you may be able to offset those taxes by selling those unsuccessful investments at a loss. But be certain those investments really are ones you want to unload, rather than investments with potential to rebound.3
Gifts to your heirs may not lessen your income tax bill, but they could help you give more to those you love.4 For 2012, you may give up to $13,000 to an individual (or $26,000 if you and your spouse both give to that individual) without triggering gift taxes.4 The reason to give before the end of the year is that unused exemptions can't be carried forward into the new year.
1 "Year-End Tax Planning," SmartMoney, February 6, 2012. www.smartmoney.com/taxes/income/year-end-tax-planning-9521/
2 Physicians News Digest, Dec. 13, 2011. www.physiciansnews.com/2011/12/13/year-end-2011-tax-planning-for-physicians/
3 "Year-End Tax Planning," SmartMoney, February 6, 2012. www.smartmoney.com/taxes/income/year-end-tax-planning-9521/
4 "Eight Tips to Determine if Your Gift is Taxable", Internal Revenue Service. www.irs.gov/newsroom/article/0,,id=256009,00.html