STUDIO CITY (CBSLA.com) — Tax season is right around the corner, are you ready?
Author and Financial Planner Brian Gilder visited the KCAL9 studios Wednesday to to discuss different tax planning strategies.
With the talks of tax rates going up should people with gains sell or hold onto their investments?
If you have gains in your stocks or mutual funds and you will need the money within the next six to 12 months, then selling those investments before December 31st is a good idea.
Tax rates are going up, so if you can lock in 2012 tax rates (15% for most investments), do that.
If you have a long term time horizon with your stocks or mutual funds I would just enjoy the holidays and do nothing.
Should I take taxes into consideration when making an investment?
You should always consider taxes when investing, however that should not be the main reason why you sell or buy an investment.
It is far more important that you review your investment portfolio (especially near the end of the year) to match your current investment needs or objectives.
Things change, you might not want as much risk to your portfolio, you might have a wedding to pay for, or you may have plans to start taking more income and traveling in retirement.
I don’t believe in making major changes to your portfolio, but minor changes can improve your portfolio’s performance and make a big difference over the years.
Can contributing to my 401k or other employer plan help lower my taxes?
This can help you lower your taxable wages. For example, if you earn $50,000 and contribute $5,000 to your 401k plan, you will only be taxed on $45,000. ($50,000 salary- $5,000 contribution). For 2012, you are allowed to contribute $17,000 and if you are age 50 or over you can contribute $22,500 (the catch up provision)
If you cannot contribute the maximum try to contribute at least the amount that will be matched by your employer.
Any year-end tax planning strategies for IRA’s?
You might want to think about converting your traditional IRA to a Roth IRA. Anyone, regardless of income, can convert a traditional IRA to a Roth IRA.
This can allow you the potential of for tax-free income in retirement. However, you probably will have to pay some income taxes on the conversion. Because income taxes are probably going up, you may be better off paying tax rates of 2012 than 2013.
Remember, you do not have to convert your entire traditional IRA; consider converting a portion to better manage potential taxes that occur from a ROTH conversion.
I could be taxed 50% for missing an IRA withdrawal-
If you are 70 ½ or older and have a traditional or employer-sponsored retirement plans, you’re required to withdrawal a minimum amount out of your account each year. These are called required minimum distributions, or RMDs.
Failure to do so, can result in a 50 percent tax penalty.
If you have inherited an IRA you may need to take RMD’s as well. If you have a Roth IRA, remember that one advantage of these plans is that you are not required to take minimum distributions at any time.
Can I gift money to people without paying taxes?
You can gift up to $13,000 ($26,000 if married) with no gift taxes.
For example, if Grandma wants to gift Johnny $20,000 for a down payment on a house, she should gift him $13,000 in 2012 and $7,000 in 2013. You can make an unlimited amount of $13,000 gifts to as many different people as you want. You can use gift or lose the gift for 2012.
Should I prepay certain expenses to get a bigger tax break?
You might want to prepay your property and state income taxes this year.
You could consider making your January mortgage payment in December. Before making these payments, check with your accountant to see if you are subject to AMT tax. (Alternative Minimum Tax).
If you prepare your own tax return look at form 6251. If your income exceeds the AMT exemption, which has been reduced substantially from $74,450 in 2011 to $45,000 this year for married taxpayers filing jointly.
For single filers the amount has been reduced from $48,450 to $33,750. You must calculate both regular income tax and the AMT and pay the larger one.
The problem with the AMT tax is that it removes or limits certain deductions.
For example, you could lose your property tax deduction. This is the worst tax for the average American and should be eliminated in my opinion. This year the AMT tax could affect 30 million taxpayers.