Your Annual Financial To-Do List

Things you can do before and for 2013.

What financial, business or life priorities do you need to address for 2013? Now is a good time to think about the investing, saving or budgeting methods you could employ toward specific objectives. Some year-end financial moves may prove crucial to the pursuit of those goals as well.

What can you do to lower your 2012 taxes? Before the year fades away, you have plenty of options. Here are a few that may prove convenient:

*Make a charitable gift before New Year’s Day.

You can claim the deduction on your 2012 return, provided you use Schedule A. The paper trail is important here. 

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December but only end up gifting $500 before 2012 ends, you can only deduct $500.1

Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the stock, fund or bond and then donating those proceeds. (Of course, if your investment is a loser, then it might be better to sell it and donate the money so you can claim a loss on the sale and deduct a charitable contribution equivalent to the proceeds.)1

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.1

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

*Contribute more to your retirement plan. 

If you haven’t turned 70½ and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can reduce your 2012 taxable income by the amount of your contribution. If you are self-employed and don’t have a solo 401(k), a SIMPLE plan or something similar, consider
establishing and funding one before the end of the year. Also, keep in mind that your 2012 tax year contribution to an IRA or solo 401(k) may be made as late as April 15, 2013 (or October 15, 2013 if you file Form 4868).2

In 2012, you can contribute up to $17,000 in a 401(k), 403(b) or profit-sharing plan, with a $5,500 catch-up contribution also allowed if you are age 50 or older. You can put up to $11,500 in a SIMPLE IRA in 2012, $14,000 if you are 50 or older.3

*Make a capital purchase

If you buy assets for your business that have a useful life of more than one year - a truck, a computer, furniture, a rototiller, whatever – those purchases are commonly characterized as capital expenses. For 2012, the Section 179 deduction can be as much as $139,000 (although it is ultimately limited to your net taxable business income). First-year bonus depreciation is set at 50% for most purchases of new equipment and software in 2012. The way it looks now, the 2013 deductions may be much less generous.2,4

*Open an HSA. 

If you work for yourself or have a very small business, you may pay for your own health coverage. By establishing and funding a Health Savings Account in 2012, you could make fully deductible HSA contributions of up to $3,100 (singles) or $6,250 (married couples). Catch-up contributions are allowed if you are 50 or older.2

*Practice tax loss harvesting. 

You could sell underperforming stocks in your portfolio – enough to rack up at least $3,000 in capital losses. If it ends up that your total capital losses top all of your capital gains in 2012, you can deduct up to $3,000 of capital losses from your 2012 ordinary income. If you have over $3,000 in capital losses, the excess rolls over into 2013.2

Are there other major moves that you should consider? Your to-do list might be long, for much financial change may occur in 2013...

*Pay attention to asset location.

Here are two big reasons why tax efficiency should be a priority as 2012 leads into 2013:

Next year, dividend income is slated to be taxed as regular income. So tax on qualified stock dividends could nearly triple for the wealthiest Americans.

Capital gains taxes for high earners are scheduled to jump 33% in 2013. Long-term capital gains are now taxed at 15% for those in the highest four income brackets; that rate is supposed to rise to 20% next year.5

*Should you go Roth before 2013 gets here? 

We all know federal taxes are poised to rise next year, but one little detail isn’t getting enough publicity:  the planned 3.8% Medicare surtax scheduled to hit single/joint filers with AGIs over $200,000/$250,000 will not apply to qualified payouts from Roth accounts.7

MAGI phase-out limits affect Roth IRA contributions. In 2012, phase-outs kick in at $173,000 for joint filers and $110,000 for single filers. Should your MAGI prevent you from contributing to a Roth IRA at all, you still have a chance to contribute to a traditional IRA in 2012 and then roll those assets over into a Roth.7

Consult a tax or financial professional before you make any IRA moves to see how it may affect your overall financial picture. If you have a large traditional IRA, the projected tax resulting from the conversion may make you think twice.

*Would it be worth making a 13th mortgage payment this year?

If your house is underwater, there’s no sense in doing it – and you could also argue that the dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January mortgage payment in December. If you have a fixed-rate loan, a lump sum payment can reduce the principal and the total interest paid on it by that much more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in the New Year.

Thomas Paup may be reached at 734-726-7340 or tpaup@upstreamip.com  www.upstreamip.com


Securities offered through Sigma Financial Corporation • Member FINRA/SIPC.  Fee-based investment advisory services offered through Sigma Planning Corporation, a registered investment advisor




1 - news.cincinnati.com/article/20120919/BIZ/309190108/Businesswise-Make-most-charitable-contributions [9/19/12]

2 – www.inman.com/buyers-sellers/columnists/stephen-fishman/5-things-you-can-do-now-lower-your-2012-tax-bill [10/11/12]

3 – www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions [8/2/12]

4 – www.bkd.com/articles/2012/tax-depreciation-changes-coming-in-2013.htm [3/12]           

5 – www.thenewstribune.com/2012/10/02/2317249/consider-selling-investments-soon.html [10/2/12]              

6 - www.sacbee.com/2012/09/28/4862291/tax-help-program-needs-volunteers.html [9/28/12]

7 - online.wsj.com/article/SB10001424052702304072004577325551162426954.html [10/11/12]

8- www.forbes.com/sites/janetnovack/2012/10/16/social-security-benefits-to-rise-1-7-workers-face-up-to-2425-payroll-tax-hike/ 10/16/12]

9 - www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#2 [8/2/12]

10 - www.socialsecurity.gov/planners/taxes.htm [10/18/12]




This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party or their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



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