Kelly Bullis: Now is the time for end-of-year tax planning
Well, howdy folks! I sincerely hope you all had a great Thanksgiving. We have so much to be thankful for.
One thing I am thankful for is that we have finished updating our office-computer operating system to a newer version of “doors” (not the real name to protect the innocent). I haven’t noticed any improvement in productivity, though. Have we reached a point where we upgrade technology just because it’s time to, rather than to improve the way we work?
Following are some end-of-year planning issues you need to know about before the year runs out.
Required Minimum Distribution (RMD) is for folks with IRAs who are 70½ or older. There is a penalty of 50 percent of the RMD not taken. Work with your IRA plan administrator to compute the RMD and take it out before the end of 2013. The formula is pretty simple; you start with each of your IRA balances at Dec. 31, 2012, and divide each by the factor of your age (found on an IRS table in Publication 590). You can take the sum of these RMD amounts from any IRA you pick. Good news: If you turned 70½ in 2013, you can delay the distribution for 2013 until April 15. It works only for the first year of RMD; from there on out, you must take the RMD for a year sometime in that year, not after. Beware, though; that makes two years’ RMDs taxable in one year, which might bump you into a higher tax bracket or trigger the new Obamacare 3.8 percent Medicare tax.
ROTH IRA owners are not subject to RMDs — another reason to consider converting an IRA into a ROTH IRA.
If you do not have an IRA or ROTH IRA yet but want to start one, you have until April 15 to start and contribute to it and get a deduction (there’s no deduction for a ROTH IRA) on your 2013 return. Don’t wait until the last minute, though; some IRA plan administrators may have difficulty processing the paperwork in time.
Just about everybody (with a job) can still make contributions to retirement plans already in place. Check with your plan administrators and CPA on how much you can contribute. Maximize those contributions! Get a tax deduction now; the money grows tax-deferred, and hopefully when you retire, you will pull it out at a lower tax bracket.
Are you tired of high utility bills and want to do some energy-efficient upgrades to your home? You may still have time. You could get up to a 30 percent credit for installing a geothermal heat pump, small wind turbine or solar energy system in your home. There is no upper limit, so get the best system you can and save 30 percent of the cost, compliments of Uncle Sam. (This works for 2014 and beyond, too.)
Finally, for those of you who itemize, large purchases (cars, appliances, furniture, etc.) mean paying a lot of sales tax. Save those receipts so you can deduct the sales tax you pay.
Have a Merry Christmas and a Happy New Year!
Did you hear? Being “merry” sometimes starts with being forgiving.
Kelly Bullis is a certified public accountant in Carson City. Contact him at 775-882-4459 or via BullisAndCo.com or Facebook.