As the end of 2012 approaches, we know you are busy with holidays, family, and travel, but it is also a good time to do some last minute tax planning.
Currently, a significant number of tax breaks, collectively known as the Bush-era tax cuts, are due to expire on Dec. 31, meaning taxpayers could have a higher tax burden in 2013.
Here are a few 11th-hour tax strategies that can help you keep more of your hard-earned money.
Remember that tax planning is extremely important but it should form only part of your overall financial strategy. Please see artofthinkingsmart.com for more information in creating a financial strategy.
* Capital Gains and Losses: Along with higher ordinary income tax rates, there’s a possibility that tax rates on capital gains will also increase in 2013. Currently, the top federal capital gains tax rate on assets held for more than one year is 15 percent.
If taxes go up, 2012 will be an excellent time to lock in the profits on long-term investments. Also, if there are some investments you don’t mind getting rid of, you can deduct losses to offset any capital gains and also up to $3,000 in ordinary income.
If you end up with more losses, you can use the losses for future years.
Please discuss your tax situation with a professional.
* Income Acceleration: Income is taxed in the year it is received. Depending on your situation, you may be paying higher taxes next year. In order to lower your future tax burden, take as much income in 2012 as possible.
It’s tough for employees to collect wages and salaries early, but it may be possible to receive a bonus early.
If you are self-employed or do freelance or consulting work, you have more flexibility. Ensuring you get all your billing in before the end of the year will lower the income you have to claim in 2013, when your income tax may be higher.
* Possible Deductions: Gather and organize your cash receipts to help you calculate possible deductions and miscellaneous payments. Examples:
-Do you have a hobby or activity that might also qualify as for-profit income? If so, these losses might also be eligible for deduction.
-Prepaying college tuition for your children or grandchildren could allow you to qualify for the American Opportunity Credit, Lifetime Learning credits, or other deductions.
The tax credit was extended through the 2012 tax year but may be expiring next year. Take advantage of it while you can.
– Consider giving to a charity. The amount you can deduct is limited to 50 percent of your income. In addition to the tax benefits, you get to help a cause you believe in!
-Max out IRA and/or 401(k) contributions: Depending on your income, you may be able to deduct your IRA contributions.
Remember, you can make contributions to your retirement accounts until April 15, 2013 and have them count for the 2012 tax year.
Visit artofthinkingsmart.com to view the max contributions.
-Go Green: Buyers of plug-in hybrids and electric cars after 2010 benefit from a tax credit of $2,500 to $7,500, depending on the size of the battery in the car.
In addition, energy-efficient home improvements such as geothermal heat pumps, solar panels, and wind-energy systems qualify for state and federal credits and/or grants.