The following is a guest post by Alan Kalman.
December is an ideal time to review your finances and make sure you are taking advantage of tax benefits and other possible credits or deductions.
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Consider these things when pulling 2012 paperwork together.
- Did you move or change jobs this year? Double-check that your your employer (or former employer), banking institutions, investment companies and retirement plan administrators have your current address so you’ll receive your W-2s and 1099 forms.
- If you work, do you have a Flexible Spending Account (FSA)? In most cases you have to use it all before the end of the year, or the remainder will be forfeited. If needed, ask your employer if they offer a grace period.
- Are you self-employed? You may want to explore setting up a retirement plan, like a SEP IRA, to shelter income from taxes and save for retirement. Some plans have to be set up by year-end.
- Do you itemize medical expense deductions? Starting in 2013, the threshold for allowing a deduction will increase from 7.5% of your adjusted gross income (AGI) to 10 percent if you are under age 65. You can only deduct the amount that exceeds that threshold percentage, so you may want to pay any outstanding medical bills and/or move up doctor appointments to 2012.
- Think you may be subject to an estimated tax penalty for underpaying 2012 taxes? You have time to increase your 2012 withholding to make up the shortfall and avoid a penalty (for both federal and state income taxes).
- Considering liquidating some investments that have large built-in gains? The maximum tax on long-term capital gains is 15% in 2012. If you have stock with little or no cost basis you may want to explore selling this year, since capital gains tax rates are unlikely to go lower.
- Thinking about making financial gifts to family, relatives or friends? You can gift up to $13,000 to any one individual without filing a gift tax return or paying gift tax. If married, you and your spouse can give up to $26,000 to any one individual (or more than one). If you give a check, be sure the recipient cashes it in 2012. If they wait to cash it, it will count against the year they cash it — not the year you gave it.
- Have capital losses you couldn’t take in 2011? When you file, remember to carry over any capital losses you were unable to take last year.
- Do you itemize deductions? If needed, you can carry over from 2011 any charitable contributions you were unable to take.
Alan Kalman is an instructor for the AARP Foundation Tax-Aide Program in Santa Fe, NM. He has a Masters of Science in Taxation from San Jose State University. Through the AARP Foundation Tax-Aide Program, AARP Foundation provides online tax counseling as a public service, and cannot guarantee the accuracy of the information provided. Your taxes are your responsibility. You are solely responsible for what you do in your own tax situation.
Photo credit: agrillifetoday via Flickr.