NEW YORK (MainStreet) While the average taxpayer tends to avoid thinking about taxes until the approaching April 15 deadline forces him to, once the ball drops in Times Square at midnight on December 31 and the New Year is rung in, there is very little that can be done to cut your 2013 tax bill.
But during the last two months of the year you can do a great deal to reduce your liability.
Sit down with paper and pencil, and list your taxable income and allowable deductions to date. Using your 2012 return as a guide, prepare a projected 2013 tax return. From this beginning, you can decide what steps to take to make sure you pay the absolute least amount of federal, state and local income tax for 2013.
Before I begin let me point out some important items that you should keep in mind -
- There are no year-end tax planning strategies that apply to all taxpayers in all cases. Year-end actions must be evaluated in the context of the facts and circumstances of your individual situation.
- You must consider the state and local tax consequences of your year-end actions. And also beware of the Alternative Minimum Tax (AMT). While a year-end strategy may reduce your "regular" federal income tax for 2011, it may end up costing you additional state income taxes or make you fall victim to AMT.
- Your first criteria for evaluating any financial transaction you are considering should always be economic. Tax considerations should come second.
- Be sure to review your year-end situation with your tax professional before taking any actions.