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What US Tax Planning Can Still Be Done Before Year End?

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First of all ask yourself some questions:

What has changed during 2013 and what is likely to change in 2014?

  • Personal circumstances change?
  • Increases / decreases in income?
  • Increases / decreases in expenses?

Changes in personal circumstances

When considering your overall tax position for 2013 and 2014, in addition to the changes in US tax law, you should also consider any changes in your personal circumstances.  These may have a major influence over your finances and overall tax position.   These changes can include:

  • Change in filing status (i.e., marriage, divorce, death of a spouse)
  • Birth of a child
  • Child no longer qualifying for child credit or kiddie tax
  • Casualty losses
  • Moving / relocation
  • Retirement

There are basic year-end tax planning techniques that can be used to successfully manage income taxes. These include:

  • Accelerating or deferring income
  • Accelerating or deferring expenses that can be used for tax deduction or tax credits – For example, “bunching up” deductions by paying them before the end of the year to keep your 2013 taxable income below the thresholds, paying UK taxes before December 31 this year to take the tax credit in 2013 rather than 2014.
  • Taking advantage of any tax provisions that are scheduled to expire at the end of 2013

Here are some of the things that you may consider doing:

  • “Bunching up” deductions by paying them before the end of the year to keep your 2013 taxable income below the thresholds.

If your 2013 itemized deductions are likely to be just under or just over the standard deduction amount, you might want to consider the strategy of bunching together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years.   For instance, you might want to consider moving charitable donations that would normally be made in early 2014 to the end of 2013.  A taxpayer can charge the contribution to a credit card and it is deductible in the year charged, not when payment is made on the card.

You can also accelerate payments of real estate taxes state income taxes otherwise due in early 2014. Watch out for the Alternative Minimum Tax (AMT), as these taxes are not deductible for AMT purposes.

Conversely, if you expect to pay a higher tax rate next year, you may want to claim the standard deduction this year and bunch itemized deductions into 2014 when they can offset the higher taxed income. This will boost overall tax savings for the two years combined.

  • Paying UK taxes before December 31 this year to take the foreign tax credit in 2013 rather than 2014.  Note: any unused credit may be carried forward to 2014.
  • Hold on to assets for 12 months or more before selling them to make use of the lower long term capital gains tax rate
  • Sell loss-producing assets to set against any capital gains arising
  • Making a charitable donation which qualifies for dual relief in the US & UK
  • Giving IRA distributions to charity – those over the age of 70 ½ have been are able to make tax-free distributions up to a maximum of $100,000 from their Individual Retirement Accounts to US public charities, to be allowed as an alternative to taking an itemised deduction.  This ability will end on December 31st this year.
  • Making gifts before the end of the year – if unused, these gift exclusions cannot be carried over

There are many options available depending on your personal circumstances.  Contact us if you wish to discuss your specific situation.

Source material:
http://tax.cchgroup.com/downloads/files/pdfs/legislation/2013yearend.pdf
http://www.deloitte.com/view/en_US/us/Services/tax/global-business-tax/private-company/Individual-Income-Tax-Planning-and-Compliance-Wealth-Advisors/tax-wealth-planning-guide/index.htm

Additional US Tax & Financial Resources:
US Tax changes for 2013 and 2014

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