Year-End Tax Planning Tips
December 12, 2013

Year-end tax planning could be especially productive this year because timely action may allow you to take advantage of several tax breaks that won’t be around next year unless Congress acts to extend them, which, at present, looks uncertain at best.

Several tax law changes related to the healthcare overhaul went into effect in 2013. These changes will impact many taxpayers and include: 

  • the top marginal income tax rate returning to 39.6%,
  • a new long-term capital gains tax rate for individuals in the top marginal tax bracket (20%),
  • Taxpayers with modified adjusted gross income (MAGI) in excess of $250,000 (married filing jointly ("MFJ")) or $200,000 (single) will be subject to the new 3.8% Medicare surtax on net investment income (NII),
  • The new 0.9% Medicare tax on earned income will apply to taxpayers with MAGI over the same thresholds as for the Medicare surtax on NII,
  • Taxpayers with adjusted gross income over $300,000 MFJ and $250,000 single will have their personal exemptions and certain itemized deductions phased out. 

Some additional tax planning points to consider before year's end include:

  • If you become eligible to make health savings account (HSA) contributions by December of this year, you can make a full year’s worth of deductible HSA contributions for 2013.
  • If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer can achieve important tax savings and this provision will expire at the end of the year.
  • Make contributions to an Indiana College Choice 529 Savings Plan. Contributions may be eligible for a 20% state tax credit, up to a maximum of $1,000. For a contribution to be valid for the 2013 tax year, it must be received by December 31st.
  • If you are self-employed and haven't done so yet, set up a self-employed retirement plan.
  • Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. However, unless Congress changes the law, for tax years beginning in 2014, the expensing limit will drop to $25,000, the investment ceiling will drop to $200,000, and certain property will no longer be eligible for expensing.
  • Businesses also should consider making expenditures that qualify for 50% first year bonus depreciation. Bonus depreciation also generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.