IRS Year-End Tax Saving Tips
While the looming fiscal cliff makes America's financial future uncertain, it is certain that taxpayers will shell out more money to the government in 2013.
And, while it's impossible to determine exactly what type of increases taxpayers will see, there are still ways to help you save money in 2012.
To help you get started, we spoke to Scott Cramer, a financial planner and president of Cramer & Rauchegger, and found some savings on IRS.gov to assist taxpayers.
Donate. You have five days to make a donation to charitable organization for a tax deduction. Check the IRS Website for detailed information on charitable donations.
Fund a Retirement plan. If you have a 401(k), try to max it out this year. If your company does not offer a retirement plan, then you should consider Roth IRA or a traditional IRA. You can donate to these up until the tax filing deadline in April.
Tax harvesting. With tax rates expected to go up, consider selling some highly appreciated stock. If you want to minimize your tax liabilities, sell some losers and some gainers, says Cramer.
Avoid a wash sale. Do not purchase the same stocks sold to minimize tax liabilities in the next 30 days because that is considered a wash sale, which means you will cancel out your sale. You can find the rules on capital gains and losses on the IRS Website.
Get rid of poor performers. "Capital gains taxes are going up and going away," said Cramer. With taxes on stock gains expected to increase from about 15 percent to 20 percent, take a look at all the stock you own and consider selling shares that are laggards. "Your stock has to go up 5 percent just for you to break even, and there is expected to be a 3.8 tax levy on stock as of Jan. 1st. You have to expect any stock you own to appreciate by 8 percent to break even," said Cramer.
Close on a Home. If your home purchase is in the final stages, attempt to close by Dec. 31 to avoid an expected 3.8 percent tax. See Realtor.org for scenarios on the expected 3.8 percent investment income tax, which does not apply to gains under $500,000.
Organize Receipts. Take some time to organize tax receipts before sitting down with your accountant or financial planner. Do not forget distributions or rollovers from retirement funds.
Earned Income Tax Credit. If you earn under $45,068, then you may be eligible for a tax credit. Check out th e IRS Website for details on eligibility.
Don't forget the Child Tax Credit. Taxpayers may be able to reduce their federal income tax by up to $1,000 for each qualifying child under the age of 17. Check out these ten facts to determine if you meet the criteria for a tax credit.
Make last-minute tuition payments. The American Opportunity Tax Credit, which was created to help parents and students pay for college expenses, is expected to expire at the end of the year. Check to see if you are eligible for the maximum $2,5000 per student annual tax credit.
Last-minute energy efficiency purchases. The federal government offers tax credits for homeowners that purchase energy efficient products. You can check online to determine what products are eligible for the tax credit.
Individuals at every income bracket are expected to see a tax hike in 2013. You can begin to prepare yourself for how your household might be impacted by looking at these figures from the A ssociated Press.
Here's how tax increases could impact households next year:
Annual income: $20,000 to $30,000. Average tax increase: $1,064.
Annual income: $40,000 to $50,000. Average tax increase: $1,729.
Annual income: $50,000 to $75,000. Average tax increase: $2,399.
Annual income: $75,000 to $100,000. Average tax increase: $3,688.
Annual income: $100,000 to $200,000. Average tax increase: $6,662.
Annual income: $200,000 to $500,000. Average tax increase: $14,643.
Annual income: $500,000 to $1 million. Average tax increase: $38,969.
Annual income: More than $1 million. Average tax increase: $254,637.
The Associated Press contributed to this story.