To Our Clients and Friends, As we approach year-end, it's time to focus on what you can do to save federal income taxes -- both on your 2013 return and in future years. To get you started, we've included a few money-saving ideas here that you may want to put in action before the end of the year. Contact us if you have questions about which ideas may be appropriate for you or if you want to discuss other tax-saving strategies. Individual tax strategies: • Maximize the benefit of the standard deduction. For 2013, the standard deduction is $12,200 for married taxpayers filing joint returns ($6,100 for single taxpayers). The 2014 amounts will be slightly higher. If your total itemized deductions each year are normally close to these amounts, you may be able to maximize their tax benefit by bunching deductions into every other year. By carefully timing your itemized deductions, they will exceed the standard deduction one year but not the next, which enables you to alternate between claiming itemized deductions and the standard deduction. For instance, you might consider moving charitable donations you normally would make in early 2014 to the end of 2013. Keep in mind that donations made by credit card are deductible in the year charged, not when payment is made on the card, so donations charged before the end of 2013 are deductible in 2013. You can also accelerate payments of your real estate taxes or state income taxes otherwise due in early 2014. • Don't lose a charitable deduction for lack of paperwork. Charitable contributions are only deductible if you have proper documentation. For cash contributions of less than $250, this means you must have either a bank record that supports the donation (such as a cancelled check or credit card receipt) or a written statement from the charity that meets tax-law requirements. For cash donations (including donations made by check or credit card) of $250 or more, a bank record is not enough. You must obtain, by the time your tax return is filed, a charity-provided statement that shows the amount of the donation and lists any goods or services received in return for the donation (other than intangible religious benefits) or specifically states that you received no goods or services from the charity. • Make charitable gifts of appreciated stock. If you have appreciated stock or mutual fund shares that you've held more than a year and you plan to make charitable contributions before year-end, keep your cash and donate the shares instead. You'll avoid paying tax on the appreciation, but you will still be able to deduct the donated property's full value. If you want to maintain a position in the donated securities, you can immediately buy back a like number of shares. However, if the shares are now worth less than when you acquired them, sell the shares, take the loss, and then give the cash to the charity. If you give the shares to the charity, your charitable deduction will equal the shares' current value, and no capital loss will be available. Also, if you sell the shares at a loss, you can't immediately buy them back as this will trigger the wash sale rules. This means your loss won't be deductible. Instead, it will be added to the basis in the new shares. • Make charitable donations from your IRA. If you're age 70 ½ older, you can arrange to transfer up to $100,000 of otherwise taxable IRA money to a charity. Such a transfer is federal-income-tax-free to you and counts toward your required minimum distribution for the year, but you don't get to claim a charitable deduction on your Form 1040. However, the tax-free treatment equates to a 100% write-off, and you don't have to itemize your deductions to get it. Be careful-to qualify for this tax break, the funds must be transferred directly from your IRA to the charity. Also, you must have the same type of acknowledgement from the charitable organization that you would need to claim a deduction for a charitable contribution. This favorable provision will expire at the end of this year unless Congress extends it, so this could be your last chance to take advantage of it. 11098 Biscayne Blvd., Ste 304 Miami, FL 33161 Certified Public Accountants & Financial Planners Ph: 305-892-8598 Fax: 305-892-9949 www.tomlongman.com • Claim a loss for poorly performing securities. Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end can be a tax-smart idea. The resulting capital losses will offset capital gains from other sales this year, including high-taxed short-term gains from securities owned for one year or less. If capital losses for this year exceed capital gains, you will have a net capital loss for the year. You can use that net capital loss to shelter up to $3,000 of this year's hightaxed ordinary income ($1,500 if you're married and file separately). Any excess net capital loss is carried forward to next year. Selling enough loser securities to create a net capital loss that exceeds what you can use this year might make sense. You can carry forward the excess capital loss to 2014 and beyond and use it to shelter both short-term gains and long-term gains recognized in those years. • Review your 2013 tax payments. With the increase in the top tax bracket, as well as the new additional Medicare tax and the tax on net investment income, individuals with higher incomes will likely see their taxes go up this year. This makes it more important than ever to do tax projection calculations before the end of the year to see where you stand. If it looks like you are going to owe income taxes for 2013, consider bumping up the federal income taxes withheld from your paychecks now through the end of the year. When you file your return, you will have to pay any taxes still due after the amounts paid in. However, as long as your total tax payments (estimated payments plus withholding) equal at least 90% of your 2013 liability or, if smaller, 100% of your 2012 liability (110% if your 2012 adjusted gross income exceeded $150,000; $75,000 for married individuals who filed separate returns), penalties will be minimized, if not eliminated. • Watch out for alternative minimum tax (AMT). Watch out for the AMT in all of your planning. What may be a great move for regular tax purposes may create or increase an AMT problem. AMT can result from many different types of tax items and tax scenarios. Common causes are high amounts of state and local taxes and miscellaneous itemized deductions claimed on Schedule A as well the tax rules that apply when incentive stock options are exercised. Effective tax planning requires that a taxpayer's exposure to AMT be determined because it can change how planning is approached. Business tax strategies: • Bigger Section 179 deduction. If you own a business and have plans to buy a business computer, software, office furniture, equipment, or other tangible business property, you might consider doing so before year-end to take advantage of the temporarily increased Section 179 deduction limit. For 2013, the maximum Section 179 deduction is $500,000. This means a business can often claim first-year write-offs for the entire cost of new and used equipment and software additions. Unless Congress takes action, the Section 179 deduction limit will drop to about $25,000 in 2014. • Section 179 deduction for real estate. Real property costs are generally ineligible for Section 179 expensing. However, an exception applies for tax years beginning in 2013. Under the exception, your business can immediately deduct up to $250,000 of qualified costs for restaurant buildings and improvements to the interior of retail and leased nonresidential buildings. Any Section 179 deductions taken for these real estate expenditures are counted for the overall $500,000 limit. This temporary real estate break will not be available for tax years beginning after 2013 unless Congress extends it. • 50% first-year bonus depreciation. In addition to the bumped-up Section 179 deduction, your business can also claim first-year bonus depreciation equal to 50% of the cost of most new (not used) equipment and software placed in service by December 31 of this year. For a vehicle that's used for business and subject to the annual limits on depreciation, the 50% bonus depreciation break increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service this year. The 50% bonus depreciation break will expire at year-end unless Congress extends it. These are just a few suggestions to get you thinking about your own personal tax situation. Please call us at (305)892-8598 if you'd like to know more about them or want to discuss other ideas. Best regards, Thomas J Longman, CPA, PFS 11098 Biscayne Blvd., Ste 304 Miami, FL 33161 Certified Public Accountants & Financial Planners Ph: 305-892-8598 Fax: 305-892-9949 www.tomlongman.com