Lehigh Valley Woman – Finance Section – December 2013 / January 2014
by Laurie A. Siebert, CPA, CFP®, AEP® Vice President, Valley National Financial Advisors
RELATED PODCAST: Your Financial Questions (Listen/Download)
I am so used to answering questions as the host of the radio show, “Your Financial Choices,” on WDIY 88.1FM that I thought December might be a good time of year to answer questions that may affect your income taxes and some of your other financially sensitive decisions.
End of year tax decisions – Can I still do some tax planning?
Lowering your federal wages or other page one income, might impact other deductions, credits or taxes that are based on adjusted gross income. If you work and have an employer provided retirement plan like a 401k, you may be allowed to put in a specific dollar amount in December if you have not maxed out your allowable deferral. Also, you may be eligible to contribute to an IRA up until April 15 of the next year. This may impact your eligibility for things like education tax credits which are based on your income.
If you have an Individual Retirement account, are over age 70 ½ and are subject to Required Minimum Distributions, you may request that part or all of that distribution be made to a favorite charity. This is called a Qualified Charitable Distribution and the benefit is set to expire at the end of 2013. You won’t be required to report that amount on page one of your return, nor will you report it if itemizing deductions.
When do I have to start taking money out of my retirement accounts?
If you are age 70 ½ you have reached the required minimum distribution age for taking distributions from your IRA or 401k. If you are still working, there may be some exceptions for you but for most, you must start taking out a minimum amount or be penalized 50% of the amount required to be distributed. Make sure you understand the rules. You must take your first distribution by April 1 of the year following the year you turn 70 ½. If you wait that long though, you end up with two distributions in one year. Make sure you consider what the best timing is for this decision. The required minimum distribution rules do not apply to ROTH IRAs. They do apply to any inherited retirement accounts. The distribution rules can vary on inherited retirement assets but usually, starting by December 31 following the year of death gives the beneficiary the most options.
Should I harvest investment losses in my portfolio?
You really should consult your tax adviser on this but do your homework first by knowing:
- Do you have prior year capital losses that have carried forward to your current year and are those losses short term or long term?
- What are your realized gains and losses year to date?
- What income tax bracket are you in on your tax return?
- Are you subject to Alternative Minimum Tax?
- If you are taking losses, are you planning on buying back the position sold and if so, when?
- Have an estimate of all income and deductions for the year. Know what else might be impacted by these decisions so that you can coordinate planning for the best results. Then, consult your tax advisor.
What is the amount of medical expenses that I can take?
People can take a deduction on their income tax return called a standard deduction or if higher, they can itemize deductions. These include medical expenses, such as doctors, dentists, prescriptions, eyeglasses, or hearing aids. They also include other expenses such as state and local income taxes, real estate taxes, mortgage interest and charitable contributions. This list is not all inclusive. If these types of expenses are higher than the standard deduction, you may itemize after applying further limitations first. One of those limitations is the medical expense limitation which in 2013 was raised to 10% of your adjusted gross income if you are under age 65. For those that are age 65, it will continue to be a 7.5% limitation for 2013. That means that you can only deduct those expenses in excess of that limitation. Once that number is added to the other allowable deductions and it is more than the standard deduction, you can itemize and benefit from the additional deductions.
Best wishes for a happy holiday season and good planning. Email me at lsiebert@valleynationalgroup.com or at www.yourfinancialchoices.com for more information or additional questions.
Be proactive, not reactive, and make the best of your choices.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of 1. avoiding penalties under the Internal Revenue Code or 2. promoting, marketing, or recommending to another party any transaction or matter addressed herein. Valley National Financial Advisors is the marketing name for Valley National Group, Inc. and its affiliates. Securities offered through Valley National Investments, Inc member FINRA, SIPC, 1655 Valley Center Pkwy, Suite 100, Bethlehem, Pa 18017 (800) 383-8297.
