2013 Year-End Tax Planning Considerations

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013 for use by Evan R. Guido.

As the end of the 2013 tax year approaches, set aside some time to evaluate your situation. Here are some things to keep in mind as you consider potential year-end tax moves.

1. The tax landscape has changed for higher-income individuals

This year a new 39.6% federal income tax rate applies if your taxable income exceeds $400,000 ($450,000 if you're married and file a joint return, $225,000 if you're married and file separately). If your income crosses that threshold, you'll also be subject to a new 20% maximum tax rate on long-term capital gains and qualifying dividends (last year, the maximum rate that applied was 15%).

That's not all--you could see a difference even if your income doesn't reach that level. That's because if your adjusted gross income is more than $250,000 ($300,000 if you're married and file a joint return, $150,000 if you're married and file separately), your personal and dependency exemptions may be phased out this year, and your itemized deductions may be limited.

2. New Medicare taxes apply

Two new Medicare taxes apply this year. If your wages exceed $200,000 this year ($250,000 if you're married and file a joint return, $125,000 if you're married and file separately), the hospital insurance (HI) portion of the payroll tax--commonly referred to as the Medicare portion--is increased by 0.9%. Also, a 3.8% Medicare contribution tax generally applies to some or all of your net investment income if your modified adjusted gross income exceeds those dollar thresholds.

3. Don't forget the basics--retirement plan contributions

Make sure that you're taking full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs (assuming that you qualify to make deductible contributions) and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds pretax, reducing your 2013 income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) plan are made with after-tax dollars, but qualified Roth distributions are completely free from federal income tax. For 2013, you can contribute up to $17,500 to a 401(k) plan ($23,000 if you're age 50 or older), and up to $5,500 to a traditional or Roth IRA ($6,500 if you're age 50 or older). The window to make 2013 contributions to an employer plan typically closes at the end of the year, while you generally have until the due date of your federal income tax return to make 2013 IRA contributions.

4. Expiring provisions

A number of key provisions are scheduled to expire at the end of 2013, including:

• Increased Internal Revenue Code Section 179 expense limits and "bonus" depreciation provisions end.
• The increased (100%) exclusion of capital gain from the sale or exchange of qualified small business stock (provided certain requirements, including a five-year holding period, are met) will not apply to qualified small business stock issued and acquired after 2013.
• This will be the last year that you'll be able to make qualified charitable distributions (QCDs) of up to $100,000 from an IRA directly to a qualified charity if you're 70½ or older; such distributions may be excluded from income and count toward satisfying any required minimum distributions (RMDs) you would otherwise have to receive from your IRA in 2013.
• The above-the-line deductions for qualified higher education expenses, and for up to $250 of out-of-pocket classroom expenses paid by education professionals, will not be available starting with the 2014 tax year.
• This will also be the last year you'll be able to elect to deduct state and local sales tax in lieu of state and local income tax if you itemize deductions.

Got Questions? Ask Guido

Evan R. Guido

Vice President of Private Wealth Management

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