Monday, December 17, 2012
End-of-year tax planning checklist
With the year quickly coming to a close, it's officially crunch time: Whether you've been meaning to drop off clothes at Goodwill or gift cash to your grandchildren, now's your last chance to make those good intentions count for your 2012 taxes.
Use this checklist – provided by Suzan Martin-Hallahan, a Dupaco Financial Services investment executive – to make sure you've done your tax-related homework before the Dec. 31 deadline arrives:
- 529 plan contributions: If you take advantage of a 529 college savings plan, make sure you've made your 2012 contributions. Check with your plan to find out whether any of your contributions are deductible for state income tax purposes.
- Charitable gifts and donations: Give to your favorite charities and drop off any other donations by Dec. 31. If you're donating money to a charitable organization, your check will generally suffice as a receipt if the donation less than $250. Anything over that amount requires a written receipt from the recipient. If you're donating clothes, household goods or other items, ask for a receipt.
- IRA contributions: You have until April 15, 2013, to make this year's IRA (Individual Retirement Account) and Roth IRA contributions. Check with your tax advisor to make sure that you're contributing to the right account, that you're contributing the correct amount and to determine whether your IRA contribution will be tax-deductible. "All of them have rules attached," Martin-Hallahan said.
- IRA distributions: If you are 70½ years old or older and you have an IRA, take your required minimum distribution by the end of the year. "Otherwise they have a big, ugly IRS penalty for what they don't take," Martin-Hallahan said.
- Gifting: Whether you're trying to lower your estate or are feeling extra generous, you have until Dec. 31 to gift cash, securities or property to others. Current gifting guidelines allow you to gift up to $13,000 per person per year without having to disclose it. "You don't have to claim it, and neither does the person who receives it," Martin-Hallahan said.
- Sales of securities: If you are taking capital gains or losses for sales of securities in 2012, you have to place that trade before Dec. 31 to be on that tax year. "Given the fiscal cliff and piles of unknowns, that may be to your benefit to do so," Martin-Hallahan said.
- Flex spending accounts: Dec. 31 also marks the deadline to spend funds allocated in your medical flexible spending account. Use it, or lose it. Check with your plan administrator on this deadline, as well as the deadline for submitting reimbursement claim requests for eligible purchases. If your employer offers a flexible spending plan, consider enrolling for 2013 to take advantage of the tax savings. To determine how much to set aside in your account, look at this year's out-of-pocket medical expenses and purchases, and consider any additional medical expenses your family might incur next year. "The flex spending accounts allow you to use tax-free money to offset your medical expenses," Martin-Hallahan said. "You're going to be paying that deductible anyway, why not pay with money you didn't have to be taxed?"