Although there are only a few weeks left to go before the year ends, it’s not too late to implement some planning moves that can improve your tax situation for 2013 and beyond. This post reviews some actions that you can take before Dec. 31 to improve your overall tax picture.

Make HSA contributions. A calendar year taxpayer who is an eligible individual under the health savings account (HSA) rules for December 2013, is treated as having been an eligible individual for the entire year. Thus, an individual who first became eligible on, for example, Dec. 1, 2013, may then make a full year’s deductible-above-the-line contribution for 2013. If he makes that maximum contribution, he gets a deduction of $3,250 for individual coverage, and $6,450 for family coverage (those age 55 or older get an additional $1,000 catch-up amount).


Nail down losses on stock while substantially preserving one’s investment position. A taxpayer may have experienced paper losses on stock in a particular company or industry in which he wants to keep an investment. He may be able to realize his losses on the shares for tax purposes and still retain the same, or approximately the same, investment position. This can be accomplished by selling the shares and buying other shares in the same company or another company in the same industry to replace them. There are several ways this can be done. For example, an individual can sell the original holding, then buy back the same securities 31 days later.


Accelerate deductible contributions. Individuals should keep in mind that charitable contributions and medical expenses are deductible when charged to their credit card accounts (e.g., in 2013) rather than when they pay the card company (e.g., in 2014).


Solve an underpayment problem. Because of the new additional .9% Medicare tax and/or the new 3.8% surtax on unearned income, more individuals may be facing a penalty for underpayment of estimated tax than in prior years. An employed individual who is facing a penalty for underpayment of estimated tax as a result of either of these new taxes or for any other reason should consider asking his employer—if it’s not too late to do so—to increase income tax withholding before year-end. Generally, income tax withheld by an employer from an employee’s wages or salary is treated as paid in equal amounts on each of the four estimated tax installment due dates. Thus, if an employee asks his employer to withhold additional amounts for the rest of the year, the penalty can be retroactively eliminated. This is because the heavy year-end withholding will be treated as paid equally over the four installment due dates.

Outside-the-box solution. An individual can take an eligible rollover distribution from a qualified retirement plan before the end of 2013 if he is facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution at a 20% rate and will be applied toward the taxes owed for 2013. He can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2013, but the withheld tax will be applied pro rata over the full 2013 tax year to reduce previous underpayments of estimated tax.


Accelerate big ticket purchases into 2013 to get sales tax deduction. Unless Congress acts this year or next to extend it, the option for itemizers to deduct state and local sales taxes in lieu of state and local income taxes will expire at the end of 2013. As a result, individuals who are considering the purchase of a big-ticket item (e.g., a car or boat) should do so before year end if they are planning to elect on their 2013 return to claim a state and local general sales tax deduction instead of a state and local income tax deduction.


Prepay qualified higher education expenses for first quarter of 2014. Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2013. Thus, individuals should consider prepaying in 2013 eligible expenses for 2014 courses if doing so will increase their 2013 deduction for qualified higher education expenses.  Generally, a 2013 deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014.


Lock in the potential to earn tax-free gains. There is no tax on gain from the sale of qualified small business stock (QSBS) that is: (1) purchased after Sept. 27, 2010 and before Jan. 1, 2014, and (2) held for more than five years. Additionally, there’s a temporary alternative minimum tax (AMT) break. Normally, there is an AMT preference for a portion of gain from the sale or exchange of QSBS that is excluded from gross income for regular tax purposes. However, the preference doesn’t apply to QSBS acquired after Sept. 27, 2010 and before Jan. 1, 2014. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less, and a number of other technical requirements must be met.


Be sure to take required minimum distributions (RMDs). Taxpayers who have reached age 70-— should be sure to take their 2013 RMD from their IRAs or 401(k) plans (or other employer-sponsored retired plans). Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Those who turned age 70-— in 2013, can delay the first required distribution to 2014. However, taxpayers who take the deferral route will have to take a double distribution in 2014—the amount required for 2013 plus the amount required for 2014.


Use IRAs to make charitable gifts. Taxpayers who have reached age 70-—, own IRAs and are thinking of making a charitable gift, should consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.


Make year-end gifts. A person can give any other person up to $14,000 for 2013 without incurring any gift tax. The annual exclusion amount increases to $28,000 per donee if the donor’s spouse consents to gift-splitting. Annual exclusion gifts take the amount of the gift and future appreciation in the value of the gift out of the donor’s estate, and shift the income tax obligation on the property’s earnings to the donee who may be in a lower tax bracket (if not subject to the kiddie tax).

A gift by check to a noncharitable donee is considered to be a completed gift for gift and estate tax purposes on the earlier of:

1. The date on which the donor has so parted with dominion and control under local law as to leave in the donor no power to change its disposition, or

2. The date on which the donee deposits the check (or cashes it against available funds of the donee) or presents the check for payment, if it is established that:

  • The check was paid by the drawee bank when first presented to the drawee bank for payment;
  • The donor was alive when the check was paid by the drawee bank;
  • The donor intended to make a gift;
  • Delivery of the check by the donor was unconditional; and
  • The check was deposited, cashed, or presented in the calendar year for which completed gift treatment is sought and within a reasonable time of issuance.

Thus, for example, a $14,000 gift check given to and deposited by a grandson on Dec. 31, 2013, is treated as a completed gift for 2013 even though the check doesn’t clear until 2014 (assuming the donor is still alive when the check is paid by the drawee bank).

Warmest regards,



© 2013 Douglas Rutherford, CPA, CGMA.  All Rights Reserved.  Douglas Rutherford is a nationally recognized CPA practicing in the real estate industry. He is the founder of Rutherford, CPA & Associates, and the President and CEO of He is also the developer of the national leading real estate investment analysis software, the Cash Flow Analyzer ® & Flipper’s ® software products. Doug earned his Masters of Taxation degree from Georgia State University, Atlanta, GA.

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