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Last Chance Tax Planning Opportunities for 2012

By: Susan Delzell, EA, MBA, MST – Senior Tax ManagerSusan Delzell

As 2012 comes to an end, there is much uncertainty about next year, especially when it comes to income taxes.  However, even with this much uncertainty, it still makes sense to remind everyone of some basic tax planning and tax saving opportunities that should be considered as this year comes to a close.  The following are 12 TAX TIPS OF THE HOLIDAY SEASON.

  1. Consider taking advantage of the maximum deferral amount of $17,000 for your employee 401(k) account.  If you turned age 50 in 2012 you can defer an additional “catch-up” amount of $5,500.

  2. If you are self-employed and want to consider a “solo-401k” plan, it must be set up by 12/31/12.  Funding of the plan is not required until the tax filing deadline including extensions.  This plan is especially suitable for the sole-proprietor without employees. 

  3. Roth conversions made in 2012 will be taxable on your 2012 return, however there is still the opportunity to change your mind and reconvert back to an IRA with no tax effect up to October 15, 2013.  If income-based phase-out prevents a Roth contribution, ask us about the “back-door” Roth.

  4. Charitable contributions to qualified organizations provide a tax benefit equal to your tax bracket.  Contributions of appreciated assets (held long-term), such as publicly traded stocks and mutual funds provide a deduction equal to the Fair Market Value, thus avoiding capital gains tax were the asset sold and the proceeds donated.

  5. If you are considering a large charitable contribution but have not determined the donee(s), think about a donor-advised fund.  The contribution to the fund is deductible, even if the actual donee organizations will be later identified.  This allows distribution of the donations over time and a current year tax deduction for the full amount deposited in the fund. 

  6. Gifts to individuals of $13,000 are exempt from gift tax.  In 2013, the exemption amount increases to $14,000.  Contributions to 529 Education Plans provide a Pennsylvania deduction against taxable income up to the exemption limit.  If making a larger gift, consider a December 2012 and January 2013 plan deposit to get the highest benefit on your PA return ($13,000 and $14,000 deductions on 2012 and 2013 returns respectively.

  7. If you have a Health Savings Account (HSA) with your High Deductible Health Care Plan (HDHP), your maximum contribution for 2012 is $3,100/$6,250 for individual/family coverage respectively.  Account holders age 55 or older can contribute an additional $1,000.  Any part of the contribution made with after-tax funds is deductible on both Federal and Pennsylvania returns.

  8. Consider harvesting gains or losses by year end.  Gain harvesting may be appropriate to take advantage of the 15% rate or to offset current year losses and carryover losses or Net Operating Losses.  Repurchase of the same securities would allow a “step-up”.  See us for strategies.

  9. While the Non-Business Energy credit has expired, the Residential Energy Efficient Property Credit is still available through December 31, 2016.  This applies to first and second residences and includes Geothermal Heat Pumps, Small Wind Turbines, and Solar Energy Systems.  The credit is 30% of cost with no upper limit.  Check www.energystar.gov for details.

  10. Consider “bunching” of medical expenses to 2012, as the threshold for deductibility increases from 7.5% of AGI to 10% in 2013 for those under age 65.  Medical expenses include insurance, long-term care insurance, and medicare supplements.  Is 2012 the year to consider lasik eye surgery, or major dental work?  Both are typically not reimbursed by insurance, but are qualified expenses.

  11. If your company is hiring, consider the veteran by 12/31/12.  The Work Opportunity Credit has been extended for this specific group only.  This is referred to as the VOW to Hire Heroes Act of 2011.  Check out www.benefits.va.gov for details.

  12. Based on the increase tax due from .9% payroll and 3.8% net investment surtaxes on high-income taxpayers, it may be beneficial to exercise non-qualified stock options prior to year end rather than waiting until 2013.

If you have questions about any of these tips, please consult your Alpern Rosenthal advisor.