Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
November-December 2012 Tax Newsletter
What's New in Taxes:
Add Taxes to Your 2012 Year-end To-do List
There’s not much time left for making moves that could affect your taxes for 2012. Here are some ideas for you to consider. (Keep an eye on what Congress is doing so that you can factor any tax changes they make into your decisions.)
*Tax rates may be lower this year than they’re likely to be in future years. If that’s the case, you could save taxes by realizing income in 2012 and delaying deductions until 2013, instead of following the more traditional practice of postponing income and accelerating deductions. Estimate your situation for both 2012 and 2013 in deciding what makes most sense for you.
*Decide whether you want to sell appreciated stock or those with losses before year-end. If the maximum long-term capital gain rate goes to 20% next year, compared with 15% this year, you might decide to reverse your strategy on realizing gains and losses in 2012.
*Max out your retirement plan contributions. You can set aside $5,000 in an IRA ($6,000 if you’re 50 or older), $11,500 in a SIMPLE ($14,000 if you’re 50 or older), or $17,000 in a 401(k) plan ($22,500 if you’re 50 or older).
*If you’re trying to increase your itemized deductions for 2012 but you’re short of cash, pay with a credit card by December 31. You can then deduct the expenses on your 2012 tax return even though you pay your credit card bill in 2013.
*If you plan to sell a security before December 31 to take advantage of a capital loss, don’t get caught by the wash sale rules. To make sure the loss is deductible, refrain from buying a substantially identical security during the 61-day period that begins 30 days before you sell and ends 30 days after.
*Make charitable deductions before year-end. Cash and checks mailed by December 31 count as 2012 deductions, as do credit card charges you make by December 31. Donations of stock are deductible when you relinquish control. Allow extra time for stock transfers handled by your broker or a mutual fund company.
you taken your 2012 required minimum distribution (RMD) from your traditional
IRA? RMDs for those 70˝ and older must be taken by December 31 each year, or a
50% penalty could apply. If you just turned 70˝ this year, you could wait until
next April 1 to take your first distribution. In deciding, consider the
possibility of higher tax rates next year and the fact that a delay means
you'll have two taxable distributions for 2013.
Consider "Bunching" Deductions to Cut Your Taxes
Getting the most benefit from tax deductions requires multi-year planning as well as consideration of the alternative minimum tax (AMT).
The multi-year part involves "bunching" your expenses. That's a strategy where you decide to accelerate or delay payments between different years for itemized deductions such as state income taxes, routine health care, and charitable contributions. You calculate the tax savings for each year and choose the most advantageous time to pay the expense and claim the deduction.
The AMT adds another step to the calculation because it eliminates certain deductions. For instance, state and local income taxes are not deductible when figuring AMT liability.
What if you usually claim the standard deduction? You'll still want to take a look at your total itemized deductions in case you're close enough to the tipping point to consider accelerating some expenses into 2012. In addition, there are circumstances where itemizing makes sense even when the total is lower than your standard deduction. Your exposure to the AMT can come into play here, too, since the standard deduction is not allowed in the AMT calculation.
2012, the regular standard deduction when you're married filing jointly is
$11,900 ($5,950 for singles). The last few months of the year is a good time to
review your situation and consider opportunities for bunching deductions.
Planning could help you salvage itemized deductions that would otherwise be
lost. Contact our office for more information about this tax-cutting strategy.
Job and Pay Update
*Learning a skill helps to get a job. According to Labor Department numbers for the past six months, jobs for those with some college or an associate's degree increased by 578,000 to 35.2 million. Jobs for those with at least a four-year college degree were up by 314,000 to a total of 46.5 million. One possible explanation for the greater job growth for those with two-year degrees: A two-year degree may focus on training and providing skills that lead to finding a job.
*The gap in pay for women vs. men still exists. A study by the American Association of University Women revealed that college-educated women working full time earned an average of 82% of what their male peers earned. A study by the Institute for Women's Policy Research reported that the gender gap in wages for working women in 2011 was 82.2%. One possible explanation: Women tend to choose lower-paid fields such as education and social sciences, whereas men tend to choose higher-paying fields such as engineering and computer science.
What's New in Finances:
RMD Deadline Approaching
Reminder: Required minimum distributions (RMDs) must be taken by December 31.
RMDs are mandatory withdrawals from certain retirement accounts, generally after you reach age 70˝.
You must take a withdrawal by December 31 if the rules apply to you -- and there's a hefty penalty for procrastinating. Missing the deadline could cost you 50% of the amount you were required to withdraw.
How much do you have to take out of your retirement account? That depends on the balance in your account (or accounts) on December 31, 2011, and your age on your birthday in 2012. Your spouse's age can also affect how much you're required to withdraw in situations when your spouse is the sole beneficiary of the account and is more than ten years younger than you are.
You can always withdraw more than the required amount. Just remember each year's RMD stands on its own, and any excess you take this year has no effect on your 2013 RMD.
One other RMD quirk: If you're thinking of converting to a Roth by the end of December, you'll need to take your RMD from your retirement account first.
Call now to make sure you're in compliance with the RMD rules. We're here to help.
IRS Issues Charity Fraud Alert
The IRS is warning people to be aware of fraud connected with Hurricane Sandy. As is usually the case following a natural disaster, scam artists are impersonating charities to get money or financial information from those wanting to help victims of the storm.
The scammers contact people by phone, social media, e-mail, or in person.
To avoid falling for a scam, donate only to recognized charities, and avoid those with names that are similar to real charities. Do not give personal information to those seeking contributions, and don't give cash donations. Contributions by check or credit card provide greater security as well as a record for tax purposes.
You can check all tax deductible eligible charities from this link to the IRS website: http://apps.irs.gov/app/eos/forwardToPub78Download.do
Ask These Questions Before You Retire
If you're within a stone's throw of retirement -- for most folks, that's somewhere between the ages of 55 and 65 -- you've probably spent at least a little time dreaming about life after work. But before you turn off the computer and turn in your retirement paperwork, consider three important questions.
*What will you do in retirement? If you love golf, and dream of getting up late and hitting the greens every afternoon, retirement may be just the ticket. But your hobby may not hold the same appeal after a few years. That's why it's important to take stock of your interests, hobbies, and activities before retiring. Consider "field testing" activities you intend to pursue in retirement, such as joining a band, volunteering for a nonprofit organization, or taking classes at a community college. Doing "retirement activities" before you retire can be an eye-opening experience, and may help to separate daydreams from reality.
*Will you work? Studies show that the number of older Americans either holding jobs or looking for work has been rising for at least 15 years. Of course, some folks seek employment out of necessity: bills need to get paid. But for many people, work also provides needed social interaction and a sense of satisfaction. Consequently, some may decide to work at least part-time during retirement -- whether or not they need the money. Another idea that's gaining popularity is called "serial employment." With this strategy, you spend part of your "retirement" years employed in a series of full-time jobs interspersed with periods of travel and leisure. Such a plan can generate a healthy supplemental income for you and benefits for talent-starved employers.
*Have you saved enough? This, as they say, is the million-dollar question. But how much money you'll need to comfortably retire depends on many factors, including the status of your mortgage and other loans, your general health, expected rates of return on your investments, the size of your current nest egg, life expectancy, plans during retirement (including travel), pensions and other sources of income, the cost of health care and insurance, and myriad other considerations. One size doesn't fit all. So it's important to confer with a trusted advisor who'll help you take a hard look at the numbers -- before you wave goodbye to your employer.
For guidance in your retirement planning, give us a call.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted & Christensen, Janell Israel & Associates and NPC are separate and unrelated companies.
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