Advanced Underwriting Consultants

Ask the Experts – December 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: What advice should I give my clients as the year comes to an end?

Answer: For many, December offers the last big chance to reduce and manage income tax results for the year. Some advice is specific to 2013, but much of the advice is generally applicable at the end of every year.

For individuals:

    • Defer income for a year by waiting to sell appreciated stock or other property until the beginning of next year. For clients expecting their incomes to increase next year, though, it might make sense to incur the gain on the sale now while their tax brackets are relatively low.
    • Harvest losses by coordinating sales of loss property with gain property to neutralize capital gains.
    • Defer income by making elective deferrals to 401(k) or other qualified plans, if possible.
    • Make qualified charitable distributions from an IRA to satisfy the required distributions on the year. QCDs are set to expire after 2013.
    • Make a $5,500 deductible IRA contribution prior to April 15, if eligible.
    • Consider buying an electric car or installing energy efficient improvements before the end of the year in order to take advantage of certain expiring tax credits.

For wealthier clients looking to lower their respective estate taxes:

    • Make annual exclusion gifts. The annual exclusion allows an individual to make a $14,000 gift in 2013 without incurring any gift taxes or filing a return.
    • Make family gifts of appreciated property.
    • Make gifts of family limited partnership interests.

For business owners:

    • Take advantage of the expiring bonus depreciation rules which allow business owners to expense half the cost of certain depreciable assets in the first year.
    • Take advantage of the ability to expense certain assets under Section 179. This section allows the business to immediately deduct the purchase price of assets that would otherwise be capitalized. Section 179 is significantly weakened after 2013.
    • Take advantage of the ability to depreciate certain real property on a shorter, 15-year schedule. This ability is set to expire after 2013.
    • Take advantage of the Work Opportunity Tax Credit by hiring individuals from certain targeted groups. To be eligible, the employer must hire the employee before the end of 2013.
    • Invest in or purchase small business stock. Under Section 1202, a shareholder of a small business (essentially a C corporation with assets not exceeding $50 million) can exclude a percentage of the gain on the subsequent sale of the stock if held for more than five years. The percentage is 100 percent if the stock was acquired in 2013, but only 50 percent thereafter.

Additionally, as with the end of every year, your client should review his personal and business documents, including any buy-sell agreements, estate planning documents and any other document with a listed beneficiary to make sure everything is up-to-date in the client’s life.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.