The fiscal cliff is looming on the horizon, drawing ever closer with each passing day. What does this have to do with a post about year-end tax tips you might ask? The answer: everything.
The tax changes that will automatically take hold on Jan. 1, 2013, if no fiscal cliff deal is reached is sending some consumers scrambling to complete certain types of transactions before the end of the year in hopes of reducing their future tax burden. Even if you aren’t concerned about the fiscal cliff, though, you’ll find these year-end tax tips for 2012 useful.
1. Charitable donations
Whether you are donating cash or items, your donation must be submitted to a qualified organization by Dec. 31, 2012 to take a deduction on your taxes. Don’t forget the donation receipt.
2. Flexible spending account and dependent care accounts
If you have contributed to a flexible spending account (FSA) this year, make sure you empty the account before the end of the year. FSAs are a use-it-or-lose-it way to save for medical and other healthcare expenses. The same goes for your dependent care account. The Cigna website has a great list of eligible and ineligible expenses that will help you spend any last dollars you may have in these two types of tax-preferred savings accounts.
3. Selling investments
This is where the fiscal cliff concerns come into play. If you have investments that you plan to sell in the near future, and you think that Congress and President Barack Obama won’t reach a deal to avoid the fiscal cliff, then you may want to sell these investments before the New Year because capital gains taxes will go up beginning Jan. 1. Definitely consult with your investment and tax advisors before making this decision, though.
4. End-of-year bonuses
Bonuses are another topic of concern among those concerned about the fiscal cliff. If the Bush-era tax cuts expire on Dec. 31, tax rates will go up in 2013, so an end-of-the year bonus paid out this year will be taxed on Bush-era tax cut rates. On the opposite end of the spectrum, if you think you will actually be in a lower tax bracket in 2013, then deferring your year-end bonus until after the New Year may be advantageous from a tax perspective.
5. Energy-efficiency upgrades
If energy-efficiency upgrades are in your budget, then you may want to push the projects through this month to take advantage of a tax credit. There are many federal and state tax credits available, and the U.S. Department of Energy website features a great searchable tax credit database.
Please note that I am not a certified public accountant, tax professional, certified financial advisor or any other type of financial professional. I’m merely a blogger who is very interested in personal finance topics. With that being said, please consult your tax professional for advice specific to your financial situation.