Taxpayers, check your calendars: There are 37 tax-planning days before the books close on 2013. With new tax provisions in place and several benefits expiring at the end of the year, now is the time to plot your year-end financial strategy.
Here are year-end moves that will make that April tax deadline less painful.
Avoid higher tax brackets. First, check your income and your expected marginal tax rate for the year so you can avoid surprises. If you're a high earner -- or have special income coming this year -- that's especially important because a variety of new taxes kick in this year at various income levels. Single taxpayers earning more than $200,000 and joint filers earning more than $250,000 will have a new 0.9 percent Medicare tax on wages exceeding that amount.
Even higher earners will face higher rates on income and capital gains, as well as limitations on the amount of tax deductions they can take.
Remember that a one-time event like a home sale or a retirement distribution can bump you into a much higher bracket for a year. If you're approaching these brackets, you can work now to defer income to next year or make strategic decisions about your investments.
Give away shares of stock. If you own investments outside of a tax-deferred retirement plan, you've probably had a very good year. Sell your shares and you'll have to pay sizable taxes of as much as 20 percent on your gains. But give away your shares and there are benefits to spare. If you make your year-end charitable donation in the form of a gift of appreciated shares, neither you nor the receiving charity will have to pay taxes on those gains.
Be generous with the kids. You can also give shares away to your adult children and possibly avoid gains taxes. If your child is over 18 and not a student, or a full-time student age 24 or older, they are considered independent of you for tax purposes. If your child earns less than $36,250 as a single and $72,500 as a couple filing jointly, they are in a zero-percent capital gains tax bracket for 2013. That means you can give them your shares, they can sell them, reap the gains and owe no taxes on that income. That's a super way to help out a graduate student or young person just starting on a career.
Front load your commuter benefits. For 2013 you can have your employer tuck away as much as $245 per month in pretax money to cover your commuting costs for public transportation. For 2014 that will revert to $130 a month. It's possible Congress will come in retroactively and change that for 2014, but there are no guarantees. So? Max out your bus or rail fare card for December, if there is still time.