2013 tax season tips
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Mar 24, 2013 | 19524 views | 0 0 comments | 209 209 recommendations | email to a friend | print
(BPT) - It’s tax season and, as always, there are many new rules that can create traps for the unwary. But with a few tips and tricks, you can help minimize your taxes and maximize your overall long-term financial position.

Consider the following five tax tips from Robert Fishbein, vice president and corporate counsel, Prudential Financial, who has more than 25 years of experience in tax law.

1. Last minute retirement funding - You can still make a $5,000 2012 contribution to your traditional or Roth IRA, or $6,000 if you attained age 50 during or before 2012. If self employed, you can likely contribute a larger amount to a SEP IRA. The contribution must be made on or before the due date of your tax return, and you should indicate it relates to the 2012 tax year.

2. Understand the new cost basis rules – In 2011 financial institutions started tracking and tax reporting investments in stock and gain when sold. For 2012 the new rules applied to mutual funds, dividend reinvestment plans (DRIPs) and exchange traded funds (ETFs). You can choose the method to determine cost basis or default to the approach used by the financial institution. On a go-forward basis, then, the IRS will know the amount of investment gain you need to include on your tax return. For investments that predate these rules you remain responsible for tracking and reporting cost basis and gain.

3. Beware the Alternative Minimum Tax (AMT) – The American Taxpayer Relief Act of 2013 (ATRA) is said to have “fixed” the AMT. More precisely, it permanently adjusted the AMT exemption amount for inflation. The AMT exemption acts as a shield from the tax, and the adjustment precludes being subject to the tax merely because income has increased with inflation. Don’t be misled, though, and think the AMT has gone away. The AMT is alive and well and you need to calculate your regular tax liability and your AMT liability and pay the higher amount.

4. Use the reinstated rules – ATRA restored retroactively certain provisions for the 2012 and 2013 tax years, including the ability to deduct the larger of your state income tax or sales tax and to exclude from income IRA required distributions that are paid directly to a charity. Make sure you understand how you might benefit from these various reinstated rules. 

5. Plan for higher tax rates – In 2013 several new changes will increase the burden for taxpayers. The expiration of a 2 percent reduction in payroll tax means a $2,000 tax increase for $100,000 of wages. The highest rate on ordinary income increased from 35 percent to 39.6 percent and on capital gains from 15 percent to 20 percent, and limitations on itemized deductions and personal exemptions can add around 2 percent more to your tax rate. Also, the health care law enacted in 2010 introduced a .9 percent increase in Medicare tax on wages and a 3.8 percent tax on investment income for high income taxpayers.

Regardless of your income level, it is likely you will pay more in taxes this year. You should consider whether to adjust your withholding or estimated tax payments so you are not subject to interest and penalties. You should also understand that the increased taxes make planning for 2013 and beyond more important than ever.
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