2013 Year-End Tax Planning: Power of Attorney Radio Show

Posting by Brian Wynne

As I mentioned previously on the blog, I had the pleasure of joining Wayne Zell of Odin Feldman Pittleman on his radio show, Power of Attorney. We discussed a number of tax changes for 2013 and I shared several strategies to help deal with those changes and increases.

You can listen to the entire podcast here, but here are the basics:

Tax Increases for 2013

It’s helpful to think of the tax increases that went into effect this year in tiers:

First Tier: Taxpayers filing jointly with over $250,000 of adjusted gross income (AGI) will have the following tax increases: a 3.8% tax on net investment income and an additional .9% Medicare tax on earned income – for a 3.8% total “Medicare” tax on earned income.

Second Tier: In addition to the aforementioned taxes, taxpayers filing jointly with $300,000 and greater AGI will also see what we call “stealth tax increases.” There is no definitive percentage increase, but the personal exemptions and many itemized deductions (up to 80%) that were once used to reduce taxable income will be phased out. These include charitable, mortgage interest, and several miscellaneous itemized deductions.

Third Tier: There is essentially now an additional tax bracket above $450,000 for joint filers which is a 39.6% income tax. This tier will also see a 20% tax on qualified dividends and capital gains.
2013 Year-End Tax Planning

So how can you plan for these changes and increases? Being strategic about your 2013 income level will be essential for proper tax planning. While everyone’s situation is different, these are some common strategies that we are recommending:

Retirement Planning. If you own a business, contribute the full amount to a Simplified Employee Pension Plan (SEP) or another qualified retirement plan. Employees, make sure to max out your 401(k). Deferring income to control when you hit these brackets is a good way to manage these new taxes. Retirement planning is always an important aspect of your tax and financial strategy, but it is even more essential for your 2013 tax planning.

Take Capital Losses. Talk with your advisor or broker to harvest losses to offset your capital gains, which could be taxed at significantly higher rates this year due to the new net investment income tax. Wayne and I talk more specifically about the logistics of this in the radio show.

Get Creative with Charitable Giving. There are several factors that change the charitable giving environment for this year. You may want to consider donating appreciated securities instead of cash. This is helpful given the charitable deduction phase-out, and you will not have to pay tax on the capital gains.

2013 is also the last year to donate money from your IRA to a charity. If you are 70 1/2 and over and required to take a Required Minimum Distribution, this is a tax-friendly way to give to charity while reducing your taxable income.

More details on these topics, and other items, are discussed in the podcast. As there are a number of tax changes this year, make sure you talk to your CPA to know where you’ll land in terms of taxable income, and the steps you’ll need to take to minimize your 2013 liabilities. While there are several new dynamics to navigate, I encourage you not to panic. Strategic tax planning and a long-term outlook will help you adequately structure your finances and plan for these, and other tax challenges.

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