By Linda Stern
NEW YORK, Nov 20 (Reuters) - Taxpayers, check yourcalendars: There are 41 tax-planning days before the books closeon 2013. With new tax provisions in place and several benefitsexpiring at the end of the year, now is the time to plot youryear-end financial strategy.
Here are year-end moves that will make that April taxdeadline less painful.
- First, check your income and your expected marginal taxrate for the year, so you can avoid surprises. If you're a highearner - or have special income coming this year - that'sespecially important because a variety of new taxes kick in thisyear at various income levels. Single taxpayers earning morethan $200,000 and joint filers earning more than $250,000 willhave a new 0.9 percent Medicare tax on wages exceeding thatamount.
Even higher earners will face higher rates on income andcapital gains, as well as limitations on the amount of taxdeductions they can take.
Remember that a one-time event like a home sale or aretirement distribution can bump you into a much higher bracketfor a year. If you're approaching these brackets, you can worknow to defer income to next year or make strategic decisionsabout your investments.
-- Adjust your at-work tax withholding to avoid penaltiesfor low-balling estimated taxes. You may discover that you willowe more in taxes than you thought you would, because ofbusiness or investment income. If you didn't fully account forthat by making adequate quarterly estimated tax payments to theInternal Revenue Service, you can face penalties in April.
Overcompensate now, suggests TurboTax's Bob Meighan, whocalls it a "favorite" year-end strategy. He tells taxpayers toarrange to have extra money withheld from now until the end ofthe year so they don't face penalties in April for sending intoo little in quarterly estimated taxes.
-- Give away shares of stock. If you own investments outsideof a tax-deferred retirement plan, you've had a very good year -the Standard & Poor's 500 stock index is up more than 25 percentfor the year. Sell your shares and you'll have to pay sizeabletaxes of as much as 20 percent on your gains. But give away yourshares and there are benefits to spare. If you make youryear-end charitable donation in the form of a gift ofappreciated shares, neither you nor the receiving charity willhave to pay taxes on those gains.
You can also give shares away to your adult children andpossibly avoid gains taxes. Here are the rules: If your child isover 18 and not a student, or a full-time student age 24 orolder, they are considered independent of you for tax purposes.If your child earns less than $36,250 as a single and $72,500 asa couple filing jointly, they are in a zero percent capitalgains tax bracket for 2013. That means you can give them yourshares, they can sell them, reap the gains, and owe no taxes onthat income, says Meighan. That's a super way to help out agraduate student or young person just starting on their career.(Gift tax rules kick in once you hand over more than $14,000 perperson.)
-- Front load your commuter benefits. For 2013, you can haveyour employer tuck away as much as $245 per month in pre-taxmoney to cover your commuting costs for public transportation.For 2014, that will revert to $130 a month. It's possibleCongress will come in retroactively and change that for 2014,but there are no guarantees. So? Max out your bus fare card forDecember, if there is still time.
-- Finish your short sale. If you're trying to complete theshort sale of a home that is worth less than you owe on it, doas much as you can to push your lender and your buyer tocomplete the whole transaction before the end of the year. Anyinterest they forgive will be taxable in 2014, tax-free if theydo it before the end of the year.
-- If you live in Florida or Texas, consider buying that caror boat now. One of the biggest tax breaks scheduled to go awayat year-end is the provision that allows taxpayers to deducttheir state sales taxes instead of their state property taxes.Folks who live in states that don't have income taxes can savesizeable amounts by making their big-ticket purchases in 2013.
-- Check your miscellaneous deductions. Items likework-related expenses and tax-advice fees are only deductibleonce they exceed 2 percent of your adjusted gross income.
-- Set up a solo 401(k). If you are self-employed and wantto create a 401(k) for yourself and feed it for 2013, you haveonly until December 31, 2013 to do that. You have until the dayyour taxes are due (typically April 15, or October 15, withextensions) to set up and feed other types of retirementaccounts.
- Investing Education