The Shaw Atlas
Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.
Important Due Dates:
What a crazy time of year. Between Halloween, Thanksgiving, Christmas shopping, parties, baking, planning for out-of-town guests, and just trying to run your business and/or personal affairs, who has time for anything else? However, we believe it is important for you to also think about your taxes between now and the end of the year. There are some simple year-end tax planning strategies that could save you money. Doing something on December 31 versus the next day could have a significant impact on your taxes.
Before getting into the details, I need to explain something related to tax strategizing, as there really are two main strategies to consider. First, the old rule of thumb has always been to delay taxable income and accelerate tax deductions, so your tax bill for the current year will be lower, and you will therefore delay to the future the payment of certain taxes. While this is still a good rule and generally makes sense, it may not make sense for you in any particular year. For example, If you expect your taxable income to increase in 2014 over what it will be for 2013, either due to increased income or reduced or expiring tax deductions, it may make more sense to accelerate income to 2013 and delay deductions to future years. Here are some ways to impact your current and future tax bills:
- Timing of Income – Can you control when certain income is received and recognized? If so, you should know if you’re trying to accelerate to 2013 or delay to 2014, based on the objectives mentioned above. For example, if you are planning to sell an investment that is not in a tax-protected account such as an IRA, and you expect a capital gain on the sale, you may want to sell now if your objective is to make 2013 taxable income higher, or wait until early January, if you want to defer income. Other ways to impact the timing of income recognition include Roth IRA conversions, taking IRA distributions this year rather than next year (if you are not restricted by required minimum distribution rules), putting added or less pressure on business clients to collect on receivables they owe your business, deciding when to exercise stock options, increasing or decreasing the amount you fund to your Traditional IRA or 401(k) in a particular year, etc.
- Bunching Medical Expenditures – Deductibility of medical expenses (not including the actual health insurance premiums or medical expenditures that are withdrawn from a Health Savings Account) depends on a taxpayer’s income level. Since medical expenses are limited to 10% of Adjusted Gross Income (you can only deduct those out-of-pocket expenses that exceed 10% of your adjusted gross income) bunching medical expenses is an important tax planning strategy. If you have already incurred significant medical expenses in 2013, you may wish to consider taking care of elective procedures, such as dental, vision, and other medical visits that are not time-urgent in 2013 to have a better chance of being able to deduct those expenses. However, if you expect significant medical expenses in 2014, it may make sense to wait on some of these less-sensitive medical issues to bunch them with 2014 expenses. Be aware that medical expenditures of cash-basis taxpayers (which includes most individuals) are deducted in the year they are PAID, not the year they are INCURRED, so you also can choose to accelerate or delay payment of medical bills based on your goals for these expenses.
- State Sales Tax Deduction – For the past several years, taxpayers have had the option to deduct state and local sales taxes instead of state and local income taxes, but this deduction will expire at the end of 2013. if you are considering a major purchase, such as an auto or boat, that will include sales tax, depending on the level or your state income tax payments, you may wish to make this purchase in 2013 to take advantage of this expiring deduction.
- Educator Expense Deduction – Another provision that expires after 2013 is the deduction for eligible educator expenses (i.e., teachers, principals, school counselors, etc). For 2013, these individuals are able to deduct up to $250 in their unreimbursed out-of-pocket job expenditures, so if you are planning to make these purchases, you may want to make them in 2013 so you can still take advantage of the tax deduction.
- Expiring Tax Credits – There also are a few tax credits that will expire at the end of 2013, including the residential energy credit (for qualified improvements to your home that are installed by the end of 2013), and a credit for qualified plug-in electric vehicles.
As with almost anything related to taxes, these areas can be complicated and confusing. For more details on any of these topics below, click here, or feel free to contact us.
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As the holiday season approaches, the thought of giving that perfect gift will be on the minds of many. What better way of getting into the holiday spirit than by giving to those around us that are less fortunate. Shaw & Associates is proud to support our local non-profits all year round by donating to a different non-profit charity every quarter for the privilege wearing jeans on Monday, which our fourth quarter charity is Crossroads Safehouse. If you would like to give the gift of giving this holiday season, here is a list of a few non-profits that could use your help.