During the summer months many of us are not thinking at all about taxes. It’s unfortunate because the most actionable tax planning you can do during the year may occur when you perform a mid-year assessment of your finances. Even more, it’s particularly important this year given that 2013 is the first year for the new tax legislation to go into effect.
Assessing your exposure to the new medicare tax
By now, most taxpayers should have a solid projection for their 2013 income. This can be especially useful for those that may be subject to the new 3.8% medicare tax. This tax will be imposed on unearned income (interest, capital gains, dividends, royalties, & rental income) over $200,000 for single filers and $250,000 for joint filers. If you expect your adjusted gross income to be around that amount, there are ways to maneuver around the tax. For instance, you can contribute up to $17,500 to your 401(K), $2,500 to your Flexible Savings Account (FSA), and $3,250 to your Health Savings Account (HSA). The health benefit accounts may also come in handy since the itemized deduction for medical costs is now limited to only the amount that exceeds 10 percent (7.5 percent for taxpayers over 65 through 2016) of AGI. Traditional IRA contributions can also help to lower your adjusted gross income.
What if I think I’ll be subject to alternative minimum tax?
You should consider accelerating personal tax deductions by paying January 2014 state and city estimated taxes in 2013. The tax savings can be significant for these specific deductions as it relates to alternative minimum tax.
Consider renting your property for two weeks
If you rent your home for two weeks and not more, the rental income generated is tax-free to the taxpayer. Be careful not to rent the property for more than two weeks as the status of the home can change to a rental or combination thereof.
Defer rental investment gains
If you do happen to own investment property that you’d like to sell, consider a Section 1031 like-kind exchange to defer the gain. In this strategy, an investor uses the proceeds from the sale of the investment property to purchase a replacement asset. By doing so, the gain is deferred to when the replacement asset is eventually sold.
Are there any tax considerations for startups?
If you decided to start a company as a corporation, Section 1244 allows you to claim up to $50,000 of the loss against ordinary income. Please note that up to $100,000 of the loss can be deducted for joint filers.
More investment tax questions? Browse answers or ask 2013 tax planning questions online.
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