3 last-minute moves to lower your tax bill
Commentary: There’s still time to take advantage of these tax breaks
By Bill Bischoff /MarketWatch
Although 2012 is in your rear-view mirror, it’s not too late to
make some moves that will save taxes on Form 1040 and maybe on your state income
tax return as well. Here are three possibilities.
1. Choose to deduct sales taxes if you made major purchases
If you live in a state with low or no personal income tax, be aware Congress restored the federal income tax deduction for general state and local sales taxes to cover taxes paid in 2012. Therefore, you have the option of deducting either state and local sales taxes or state and local income taxes on your 2012 return — but not both. If you chose to deduct sales taxes, most of you will have to use an IRS-provided table to calculate your sales-tax deduction. However, if you’ve hoarded receipts from your 2012 purchases, you can add up the actual sales tax amounts and deduct the total if that gives you a better answer. Even if you’re forced to use the IRS table, you can still deduct actual sales taxes from major 2012 purchases for things like motor vehicles (including motorcycles, off-road vehicles, and RVs), boats, aircraft, and certain home improvements on top of the predetermined amount from the table. For details, see the instructions for Schedule A of Form 1040 at the IRS website: www.irs.gov.
2. Establish a SEP for a big tax break
If you’re self-employed and have not yet set up a tax-favored retirement plan for yourself, you can establish a simplified employee pension (SEP). Unlike other types of small business retirement plans, a SEP can be created this year and still generate a deduction on last year’s return. In fact, if you extend your 2012 return to October 15, you’ll have until that late date to take care of the paperwork and make a deductible contribution for last year. The deductible pay-in can be up to 20% of your 2012 self-employment income or up to 25% of your 2012 salary if you worked for your own corporation. The absolute maximum amount you can contribute for the 2012 tax year is $50,000. So we can be talking major bucks here, and major tax savings too.
To establish a SEP, go to your bank or brokerage firm and fill out Form 5305-SEP. It takes five minutes. Seriously. But don’t jump the gun. You may not want a SEP if you have employees, because you might have to cover them and make contributions to their accounts. That could be too expensive. Bottom line: if you have employees, don’t start up a SEP without consulting your tax pro.
Tax Savings Example: If you’re in the 28% federal bracket, a $30,000 SEP contribution could lower your 2012 tax bill by a cool $8,400 (plus any state income tax savings). In fact, the tax savings could finance a big chunk of your contribution.
To read the entire article from Bill Bischoff /MarketWatch:
http://www.marketwatch.com/story/3-last-minute-moves-to-lower-your-tax-bill-2013-04-03
Life is not a spectator sport. -Jackie Robinson
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