Now that we’re in the new year, it’s time for an estate plan checkup. Why? First, various exclusion, exemption and deduction amounts are adjusted for inflation and can change from year to year, so it’s a good idea to see if they warrant any updates to your estate plan:

But inflation adjustments aren’t the only reason for an estate plan checkup. You should also review your plan whenever there are significant changes in your family, such as births, deaths, marriages or divorces. And your estate plan also merits a look if your financial situation has changed significantly.

If you want to find out if your estate plan needs updating — or if you don’t have an estate plan and would like to put one in place — please contact us. We can help you ensure you have a plan that will achieve your goals.

Many valuable tax breaks expired at the end of 2013. But Congress probably will revive at least some of them, likely retroactively to Jan. 1, 2014. The question is exactly which breaks they’ll extend and when they’ll pass the necessary legislation to do so.

Here are several that may benefit you or your business if extended:

• The deduction for state and local sales taxes in lieu of state and local income taxes,
• Tax-free IRA distributions to charities,
• 100% bonus depreciation,
• Enhanced Section 179 expensing,
• Accelerated depreciation for qualified leasehold improvement, restaurant and retail improvement property,
• The research tax credit,
• The Work Opportunity tax credit, and
• Various energy-related tax incentives.

Please check back with us for the latest information. In the meantime, keep in mind that, if you qualify, you can take advantage of these breaks on your 2013 tax return.

With the new year upon us, it’s time to start thinking about 2014 retirement plan contributions. Contributing the maximum you’re allowed to an employer-sponsored defined contribution plan is likely a smart move:

• Contributions are typically pretax.
• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
• Your employer may match some or all of your contributions pretax.

Also consider contributing to a traditional IRA. If you participate in an employer-sponsored plan, your IRA deduction may be reduced or eliminated, depending on your income. But you can still benefit from tax-deferred growth.
Consider your Roth options as well. Contributions aren’t pretax, but qualified distributions are tax-free.

Retirement plan contribution limits generally aren’t going up in 2014, but consider contributing more this year if you’re not already making the maximum contribution. And if you are already maxing out your contributions but you’ll turn age 50 in 2014, you can put away more this year by making “catch-up” contributions.

For more ideas on making the most of tax-advantaged retirement-savings options in 2014, please contact us.

Every December are your employees scrambling to use up their vacation time because of limits on what they can roll over to the new year? Or do you allow rollovers and have long-time employees who’ve built up large balances that create a significant liability on your books? Then you may want to consider a paid time off (PTO) contribution arrangement that allows employees with unused vacation hours to elect to convert them to retirement plan contributions.

If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.

If you’d like to offer this option, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply. Please contact us for more information on the ins and outs.

For 2013, the maximum IRA contribution is $5,500 — $6,500 if you’re age 50 or older on Dec. 31. (The maximum IRA contribution or deduction may be reduced or eliminated depending on various factors.) But if you’re self-employed, you may be eligible for a retirement plan that allows you to make much larger contributions. As long as you set up one of the following plans by Dec. 31, 2013, you can make deductible 2013 contributions as late as the 2014 due date of your tax return:

Profit-sharing plan. This allows discretionary contributions and flexibility in plan design. The 2013 contribution limit is $51,000 ($56,500 for taxpayers age 50 and older).

Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. So you may be able to contribute more to a defined benefit plan than to a profit-sharing plan. The maximum future annual benefit toward which 2013 contributions can be made is generally $205,000.

Various caveats and limits apply, so contact us for details. But act soon; there’s not much time left to set up a plan for 2013.

Maybe. Deductions are more valuable when tax rates are higher, and higher-income taxpayers face higher rates in 2013. But the return of the itemized deduction reduction could make your donation deduction less valuable. Also keep in mind that the amount of your deduction depends on various factors, including what you give. For example:

Long-term capital gains property. This might be stocks or bonds held more than one year. You may deduct the current fair market value. You also avoid any tax you’d pay on the gain if you sold the property. So such property can make one of the best donations.

Tangible personal property. Your deduction depends on the situation:

• If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
• If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

It’s important to pay attention to the many additional rules and limits that apply. If you don’t, your benefit could be smaller than expected. So before making a significant donation, please contact us to find out the tax benefit you’ll receive.

While tax consequences should never drive investment decisions, it’s critical that they be considered — especially this year: Higher-income taxpayers may face more taxes on their investment income in the form of the returning 39.6% top short-term capital gains rate and 20% top long-term capital gains rate and a new 3.8% net investment income tax (NIIT).

Holding on to an investment until you’ve owned it more than one year so the gains qualify for long-term treatment may help substantially cut tax on any gain. Here are some other tax-saving strategies:

• Use unrealized losses to absorb gains.
• Avoid wash sales.
• See if a loved one qualifies for the 0% rate.

Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on modified adjusted gross income (MAGI), strategies that reduce your MAGI — such as making retirement plan contributions — can also help you avoid or reduce NIIT liability.

Questions about year-end tax planning for your investments? Contact us today!

By projecting your business’s income and expenses for 2013 and 2014, you can determine how to time them to save — or at least defer — tax. If you’ll be in the same or lower tax bracket in 2014, consider:

Deferring income to 2014. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.

Accelerating deductible expenses into 2013. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

But if it looks like you’ll be in a higher tax bracket in 2014, accelerating income and deferring deductible expenses may save you more tax.

Accurately projecting income and expenses can be challenging. For help, please contact us. We can also provide additional ideas for timing business income and expenses to your  tax advantage.

As year end approaches, you may be trying to accelerate deductible expenses into 2013 to reduce, or at least defer, tax. But you must beware of the alternative minimum tax (AMT) — a separate tax system that limits some deductions and doesn’t permit others, such as:

• State and local income tax deductions,
• Property tax deductions, and
• Miscellaneous itemized deductions subject to the 2% of adjusted gross income floor, such as investment expenses and unreimbursed employee business expenses.

Accelerating these expenses could trigger the AMT, because you must pay the AMT if your AMT liability exceeds your regular tax liability.
The American Taxpayer Relief Act of 2012 (ATRA) set higher AMT exemptions permanently, indexing them — as well as the AMT brackets — for inflation going forward. This will provide some AMT relief, but higher-income taxpayers could still be vulnerable.
We’d be happy to help you determine whether accelerating deductible expenses will reduce your 2013 tax bill — or could trigger the AMT.

Beware of the AMT when doing year-end tax planning

Recently, the IRS released the 2014 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.34 million (up from $5.25 million in 2013). But even with the rising exemptions, making annual exclusion gifts is still a good idea.

The 2013 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2014.)

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2013 exclusion by Dec. 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your granddaughter this year, you can’t add $28,000 to your 2014 exclusions to make a $56,000 tax-free gift to her next year.

Please contact us for ideas on how to make the most of annual exclusion gifts.