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Actions you take now can cut your taxes this year

| Monday, Jan. 21, 2013, 12:01 a.m.

The Big Book of Ways to Cut Your 2012 Taxes in 2013 is out. Let's see what's inside!

Chapter 1: Contribute to a taxable IRA, if you can.

Chapter 2: Give money from your IRA to charity.

Chapters 3 through 27: We got nothing.

If you're looking for ways to cut your 2012 tax bill — ones that don't involve convincing the IRS that you have a son named Rover — you're pretty much out of luck. But if you want to avoid being in this position next year, take some steps now to reduce your 2013 taxes.

When the clock struck midnight on Dec. 31, most of your opportunities to reduce your 2012 taxes vanished like champagne bubbles. By the time your W-2 and 1099s roll in, you don't have much room to argue about what year you received income, interest or gains. You have two options to reduce 2012 taxes now.

The first: You can get an IRA deduction for 2012 if you make your contribution by April 15. If you and your spouse do not have a retirement plan at work, you can deduct your contribution — $5,000 per person, or $6,000 if you're 50 or older — from your income.

If you or your spouse can participate in an employer's retirement plan, your ability to deduct your IRA contribution diminishes. For 2012, couples need to have modified adjusted gross income less than $95,000 to take the full deduction; singles need modified adjusted gross income of less than $59,000.

The second: If you're at least 70½ and you act by Jan. 31, you can donate up to $100,000 of 2012 IRA distributions to charity, which will let you sidestep any taxes on the distribution. It's a decent deal for people who have enough retirement income and want to reduce their taxable income while doing some good.

That's it. Yes, you should make sure that you're taking the deductions you're entitled to for 2012, but there aren't any new lucrative deductions, such as one for purchasing snazzy new ties or investing in perpetual-motion machines. Instead, it's time to focus on reducing the taxes you pay this year:

• Bump up your 401(k) contribution. Money you sock away into a 401(k) reduces your taxable income and, therefore, your taxes. You'd be surprised how little contributing 1 percent more of your income would affect your budget.

• Switch to munis. If you own a bond fund outside a retirement account, consider moving to municipal bonds. Interest from munis is free from federal income taxes, and if they are issued by the state you live in, they're free from state taxes. A 10-year, high-quality muni bond yields 1.7 percent, vs. 1.88 percent for a 10-year Treasury note. But you'll keep more after taxes with the muni. To get a 1.7 percent yield after taxes, a person in the 25 percent bracket would have to earn 2.3 percent in a fully taxable investment.

• Sell your losers. Did you buy Apple in the fall in a moment of enthusiasm? If it's in a taxable account, you can sell the stock and take your loss on your 2013 taxes. Let's say you bought 100 shares of Apple at $600 a share, for a total of $6,000. If you sell it at $500 a share, you'd lose $1,000, or 16.7 percent. You can use that loss to offset $1,000 of capital gains. If you have no gains, you can deduct the loss from your income. If you feel that Apple still has potential, you can buy back the stock after 30 days. If you don't wait, your loss will be disallowed.

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