It’s not too late to make some year end tax moves for 2012
With the year coming to a close, now is a good time to consider a few last-minute tax moves. This year is particularly challenging because the chuckleheads in Washington can’t seem to get their act together with tax policy. While taxes are sure to go up next year, we don’t know by how much or who will pay them.
But there are still tax-advantaged moves you can make this year–
1. December 31st: Don’t miss the “filing” deadline of December 31, 2012 for making any last minute moves that create additional tax deductions.
2. Give: By giving appreciated stock or other securities, you may be able to avoid capital gains tax and get a nice tax deduction. We use a donor-advised fund to accomplish these objectives.
3. Sell, Sell, Sell: I’ll start by saying I’m not a big fan of this tax move. But if you think capital gains taxes are going up, you might sell now and pay the lower tax rate. If you know you’ll sell next year and you know the rate is going up, this move might be wise. For long-term investors, however, I don’t see the value.
4. Sell, Sell, Sell (part 2): If you do have gains, it may be worth selling securities that you may hold at a loss to offset some of the gains. Keep in mind that you can deduct up to $3,000 in losses, over and above offsetting any gains.
5. Educate: If you are saving for a child’s education, be sure to fund your 529 plan.
6. Max Out: Make sure to max out any retirement accounts you have to take full advantage of the tax savings. You can check out contribution and deduction limits for 401(k) or IRA accounts to see where you stand.
7. Buy: If you are a small business owner, consider making necessary purchases in 2012 for the tax deduction. That’s exactly what I’m doing with a computer purchase before the end of the year. If you want to push deductions into 2013, wait until after the first of the year to make the purchase. For 2012, section 179 of the tax code allows business owners to deduct up to $139,000 for equipment or machinery purchased this year. It’s still unclear what will happen in 2013, but the limit may fall to $25,000.
8. Pay Your Taxes: You may be able to get some extra deductions if you make estimated state income tax payments in 2012, rather than waiting until January 15, 2013.
9. Convert to a Roth: If you are considering converting a traditional IRA to a Roth IRA, 2012 is the year to do it if you may get hit with higher tax rates next year. Keep in mind that you’ll have to deal with not only potentially higher income tax rates, but also the .9% Obamacare tax if you qualify. And if taxes don’t go up, you can actually reverse the conversion if you do so before October 15, 2013.
10. Donate: Not only can you get a tax deduction, but more importantly, it’s a great time of year to help others. But make sure you itemize your contributions. A detailed list with values is necessary should your return ever be audited.
11. Give via Credit Cards: If you want to make a charitable contribution but don’t have the cash, put the contribution on a credit card. You get the deduction this year, and you can pay off the card in January.
12. SEP IRA: If you own a small business, open a SEP IRA account. This has allowed me to save a bundle for retirement, deferring the income tax on the contributions until retirement. And you can contribute to a SEP IRA even if you contribute to a 401(k) or other IRA. There are contribution limits for a SEP IRA, but they are much higher than a traditional IRA. And you can open a SEP IRA with just about any broker (mine is with Scottrade).
13. Pay Your Mortgage: If you itemize your deductions, you can make your January payment in December. The result will be to increase the amount of interest you paid this year. Of course, it means you’ll pay less interest next year.
14. Real Estate Taxes: If you pay your own real estate taxes, you can make those payments early as well.
15. Estimate: If you pay estimated taxes, recalculate your tax liability for 2012 before making your January 15, 2013 estimate tax payments.
And as always, consult a tax professional before making any important tax moves. My tax accountant has saved me from making some really bad tax decisions in the past.
Published or updated December 29, 2012.