Top Ten Ways to Reduce Taxes Right Now

You still have some time in 2013 to take steps that will beneficially affect your tax return. Here are my top ten.
1. Clean out your closet and basement and make donations to Goodwill. Keep the receipts and a record of items donated. You can value the items using the valuation guide at salvationarmyusa.org.
2. Organize your 2013 tax documents and receipts for deductions in one file folder for the year. Summarize the receipts and fill out the tax organizer.
3. If you have a business on the cash basis, delay mailing bills until late December so that payments won't be received until 2014.
4. Donate appreciated stock to charities.
5. Write a check to your favorite charity.
6. Invest in Georgia muni bonds. The interest is tax free.
7. Sell investments that will generate losses to offset any capital gains plus $3,000.
8. Buy supplies and  equipment for your business before yearend.
9. Estimate your volunteer work mileage for the year.
10. Increase your retirement plan contributions to the max.

A Medicare Plan

To get the most comprehensive coverage under Medicare which is available to those turning 65, you should consider signing up for both Medicare premium supplemental plan F and part D prescription drug coverage. This coverage costs about $200 more per month and is in addition to the required part B costs. Medicare supplemental plans reduce the out of pocket costs in co-pays and deductibles.

Some Bad Things Coming

When you file your 2013 tax return there may be some unhappy surprises for some of you. There are 4 major tax increases related to Obamacare funding and 2 high income tax rate increases which affect 2013. The 4 Obamacare tax increases are the .9% Medicare tax on earned income, the 3.8% tax on investment income (interest, dividends, capital gains, rents, and passive income), personal exemption phase out, and itemized deduction phase out of up to 80%. The 2 high income tax increases are the new 39.6% rate and the 20% capital gain rate which affect taxable income of $400,000 single and $450,000 joint. The 3.8% and the .9% tax kick in at $200,000/$250,000 adjusted gross income single and joint. The phase outs of itemized deductions and exemptions start at the $250,000/$300,000 adjusted gross income single and joint. Note that the 4 Obamacare taxes are based on adjusted gross income where the 2 high income tax changes are based on the more favorable taxable income. Note also the marriage penalty built into the new thresholds. The joint threshold isn't even close to being double the single threshold. You may want to check your tax withholding before year end to see if you are withholding enough to cover these new taxes.

Bonus Depreciation

You can still deduct 50% of the cost of business property added before 12/31/2013. To qualify the property must be new and have a recovery period of 20 years or less. Business vehicles still have depreciation limits so you don't get the 50%, but you do get an additional $8,000 bonus depreciation in the first year.

Top Ten IRS Red Flags

The overall IRS audit rate is around 1% for individuals. The following 10 items can kick up that percentage and bring you some IRS attention:

1. Reporting income over $200,000.
2. A schedule C with a net loss.
3. Office in the home deduction with business percentage over 20%
4. Claiming 100% business use of a car.
5. Rental real estate loss
6. Large fluctuation of income from prior year
7. Foreign bank account
8. Income on return doesn't match 1099
9. Meals and entertainment deductions
10. Larger itemized deductions than average for your income level

Most Important Job of an Executor

The most important job of an executor is to find all of the relevant documents of the deceased which can be very difficult depending on the size of the estate. To help your future executor and heirs, you may want to consider writing a letter now detailing your post death instructions, and describing the location of all of your important papers. The records your executor should find as quickly as possible after death include the following: cash on hand, bank account statements, auto titles, brokerage statements, retirement plan statements, insurance policies, list of user Id's and passwords for access to your financial accounts, safe deposit box inventory of items, prior gift tax returns, last three years of Federal and state income tax returns, latest credit card statements, any jewelry or art appraisals, mortgages and deeds to real property, stock or bond certificates registered to deceased, and any current shareholder, operating, or partnership agreements. I also recommend that all stock and bonds be held in street name instead of personally which means that a stock broker will keep up with the securities.

Premium on Bonds

If you pay a higher price for a bond than what it is worth at maturity because the bond pays a higher rate of interest than the current market, then you have the option of reducing your yearly interest income by the amortization of the premium or increasing your basis in the bond when it matures which reduces your capital gain or increases your capital loss. Some brokers provide a schedule of bond accretion or amortization to help you with this process and also calculate the adjusted bond basis in the schedule of realized gains and losses. Usually it is much easier and not really worth it to consider bond amortization and just leave the premium in your basis in the bond.