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Taxpayers Should Act Now to Take Advantage of IRS Changes

Posted: October 25, 2013

By: Rick Rodgers

Unlike last year, tax planning for 2013 is not hampered by uncertainties over looming fiscal cliff. Unfortunately, there is always some uncertainty and a few expiring provisions to warrant special attention by taxpayers.

Managing income taxes at year end involves techniques designed to address three issues:

  1. Accelerating or deferring income: If a taxpayer expects to be in the same or a lower tax bracket next year, it's best to defer as much income as possible until after the year end;
  2. Accelerating or deferring deductions: If a taxpayer's overall tax rate is the same in both years, accelerating deductions achieves tax savings this year rather than waiting for those tax savings to materialize next year; and
  3. Take advantage of tax provisions scheduled to expire at the end of 2013. There are several temporary tax provisions which can only be used this year.

Tax planning begins by projecting income and deductions for the year to determine your tax bracket and income thresholds that trigger higher and additional taxes, or limits the effectiveness of deductions. One of the impacts of the American Taxpayer Relief Act of 2012 (ATRA12)is the reintroduction of the Pease limitation, which can greatly limit itemized deductions. Once a taxpayer knows what his or her income taxes will look like, it’s time to evaluate which techniques will help the most.

Strategies to accelerate or defer income:

Strategies to accelerate or defer deductions:

ATRA12 extended—but did not make permanent—several tax incentives for individuals. Taxpayers should consider whether they can benefit from these incentives this year and plan accordingly. The following provisions are set to expire on December 31 unless extended again:

2013 is certainly an exciting year for tax planning. Start now in order to minimize your tax bill in April.

About Rick Rodgers
Certified financial planner Rick Rodgers is president of Rodgers & Associates, “The Retirement Specialists,” in Lancaster, PA, and author of The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning. He’s a certified retirement counselor and member of the National Association of Personal Financial Advisers. Rodgers has been featured on national radio and TV shows, including FOX Business News and The 700 Club, and is available to speak at conferences and corporate events, www.RodgersSpeaks.com.