Actions you take now can cut your taxes this year
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 lets 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 this 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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Indian SUV maker Mahindra to debut electric scooter in U.S.
- Robust jobs report could force Federal Reserve to raise interest rates
- NexTier Bank buys Oakland’s Eureka to increase coverage in Western Pennsylvania
- Stocks end roller-coaster day higher
- Alcoa putting $60M into Upper Burrell tech center expansion
- Fifth Third Bank selling Pittsburgh branches to First National
- PPG’s new CEO to push organic growth with existing clients
- Pittsburgh unemployment rate steady as job market shrinks
- Housing bright spot as Beige Book survey shows Pittsburgh region’s growth slight
- Shale gas violations down as DEP steps up inspections