Here, kid, take all the really good candy we've been hiding for ourselves and go!
Right now, many of us would like to move into November thinking about carving that turkey instead of figuring out how to cut our taxes. But careful year-end planning could take the bite out of the bill when tax season hits.
Be warned, though, that it could take a bit longer to receive your refund cash, thanks to the 16-day federal government shutdown. The start of the 2014 filing season will be delayed by about one week to two weeks. More details will be announced in December.
James Jenkins, president of Jenkins accounting firm in Southfield, said some people who depend on big refunds might want to consider changing their withholdings now to see more of their paycheck.
Other tips:
• How does a 0% rate on long-term capital gains sound? It's not some ghostly vision.
• Some retirees and others might want to review their income for the past year, talk to their tax preparers and consider selling some stock they have held for more than a year at a gain.
• The 0% long-term capital gains rate applies in 2013 if a married couple filing jointly has taxable income of $72,500 or less; the limit is $36,250 for single filers.
• If you hold onto stock for longer than 12 months, you can benefit from a reduced tax rate on long-term capital gains.
But remember, your taxable income is going to include capital gains.
One option to consider: Sell some stock at a loss in 2013 to offset some gains.
George W. Smith IV, a certified public accountant and partner at George W. Smith in Southfield, said some investors might want to harvest capital losses before year-end to avoid the new 3.8% excise tax on net investment income, too. The new tax ki! cks in for higher income households.
The big news in 2013 is that the top capital gains rate has climbed up to 20% from 15% last year. The change was made as part of a last-minute fiscal cliff deal reached during the final hours of 2012.
The maximum 20% long-term capital gains rate applies to married couples filing jointly with taxable income above $450,000 and singles above $400,000.
Smith noted that the net investment income tax effectively turns that 20% rate into a 23.8% rate.
A 15% capital gains rate applies to households between $72,501 and $450,000 for married couples filing jointly; the limit for singles is $36,251 and $400,000.
A new tax that's part of the Affordable Care Act hits in 2013.
Under the new law, taxpayers could be subject to an additional 3.8% tax on net investment income. This tax would apply only to married couples whose adjusted gross income exceeds $250,000 if filing jointly, and singles whose adjusted gross income exceeds $200,000.
The 3.8% tax does not apply to money taken out of a qualified retirement plan or IRA.
But this year, tax experts warn that someone might think twice about converting a traditional IRA into a Roth IRA. That's because the required inclusion of income from that conversion would drive up your adjusted gross income.
Tim Steffen, director of financial planning at Robert W. Baird, an investment banking firm based in Milwaukee, said multiyear planning could be necessary where someone does smaller conversions over a few years to avoid extra taxes.
An additional Medicare tax of 0.9% on gross income from wages and self-employment would be imposed on taxpayers earning more than $200,000 single or $250,000 for joint-filers.
Given the new tax, some taxpayers want to make sure they're having enough money withheld by year-end 2013, said Jim Van Grevenhof, senior tax analyst at Thomson Reuters.
Are you the sort who likes to hand out big candy bars at Halloween? Do you want to give a chunk of you! r IRA to ! charity?
Van Grevenhof said some IRA owners and beneficiaries who are 701/2 or older might find this tax break attractive, if they're making sizable charitable contributions, anyway. The tax benefit is that the money from the IRA is not included in your taxable income, as would be the case otherwise. Up to $100,000 would be permitted to be donated directly from IRAs. No, you do not get a charitable deduction, as well. But you've essentially taken an immediate 100% federal income tax deduction without having to worry about restrictions that can delay itemized charitable write-offs, Van Grevenhof said.
Mark Luscombe, principal analyst for CCH, a Wolters Kluwer business, said if someone were interested in making a one-time gift out of an IRA, it might be better to do so this year because it's unknown if the tax break would still be around in 2014. The provision currently expires in 2013.
It's best not to wait until the last week in December to try this one, though. The money must be directly transferred to the charity from the IRA; you cannot withdraw the money yourself and send a check and claim this tax break.
Tompor can be reached at stompor@freepress.com
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