Sunday, 01 December 2013 00:00

Year End Holiday List for Uncle Sam

Written by  Elizabeth Shevlin Roberts, Bryn Mawr Trust Company

Tax saving tips for more holiday gifts.

As you hurry to make your holiday list, don’t forget your financial planning list, which has only a slightly later deadline. There are many year-end planning techniques you can use to minimize your 2013 federal taxes. Here are four to discuss with your tax advisor before New Year’s Eve.


Making Gifts
If you plan to make charitable contributions in 2013, consider donating appreciated assets rather than cash. This may avoid tax on the appreciation of the assets while, in many instances, still allowing you to deduct the full market value.

If you’re 70½ or over, you can also decrease your taxes by making charitable gifts directly from your IRA to qualified charities before December 31. You can exclude up to $100,000 from your annual gross income, and this direct transfer to a charity may also satisfy required IRA minimum distributions for the year.

Finally, to save gift and estate taxes, you can make gifts that are sheltered by the annual gift tax exclusion—currently $14,000 per recipient. As there’s no limit on the number of people to whom you may make gifts, until the end of 2013. You can give up to $14,000 to as many people as you wish, with no tax on gifts or use of your lifetime federal transfer tax credits. 


Planning IRA Contributions
Contributions to your traditional IRA before the end of the year decrease your taxable income. The annual limit in 2013 is $5,500, with an additional $1,000 catch-up contribution for taxpayers who are 50 years or older. If you actively participate in an employer pension plan, there are limitations based on your adjusted gross income for making deductible contributions.

More tax savings are possible by converting your traditional IRA to a Roth IRA before 2014. As you may know, the income limit on Roth IRA conversions does not apply for 2013.

Another strategy: If you converted your traditional IRA to a Roth IRA earlier this year and the value of the investments has fallen, you may reverse that conversion. This strategy is beneficial because you can convert again, now, and pay less tax on the conversion because of the decreased value of the investments. The tax on this conversion must be paid in the year of conversion, though.

And remember, if you’re 70½, you must take the required minimum distributions from your IRA or pay a penalty of 50% of the amount not withdrawn.


Adjusting Income and Deductions
Deferring income until 2014 may offer tax savings if you expect to be in a lower tax bracket next year. Similarly, accelerating deductions by prepaying deductible expenses in 2013 can create tax savings by increasing deductions for the 2013 tax year.

A key consideration is the impact the federal alternative minimum tax (AMT) may have on you for 2013. Many tax breaks allowed for purposes of calculating regular taxes are not allowed for AMT purposes or are calculated in a more restrictive way for AMT purposes if you or your spouse is over 65. As a result, in some cases, deductions should not be accelerated. You should obtain professional advice to determine what’s best for you.


Investing Strategies
Working with your investment and tax advisors, consider realizing losses on stock while preserving your investment position. There are several ways to do this. For example, you can sell the original holding and then buy back the same securities after a proscribed waiting period.

Be aware of the new 3.8% tax on net investment income, however, which is imposed once certain income thresholds are reached ($250,000 for joint filers; $125,000 for a married individual filing a separate return; and, $200,000 in any other case).

A final note: These are just highlights of some available year-end tax planning ideas, and restrictions and rules are required to qualify for the tax benefits. Additional tax-savings techniques may be available to you, but each should be evaluated in the context of your individual situation and in consultation with your tax advisor.  


Elizabeth Shevlin Roberts is the Chief Fiduciary Officer of the Wealth Management Division of The Bryn Mawr Trust Company.With over 25 years of experience in estate, trust and charitable gift planning and administration, she serves high net worth clients and coordinates charitable gift planning advice to nonprofit clients and donors with philanthropic interests.