Year End Tax Planning

December 4th, 2013

As the year winds down we start thinking about Christmas shopping, New Years eve parties and what the heck to do with the kids while they are off of school.  We also need to think about year end tax planning.   I know tax planning is not a priority for most people, but a little advanced planning now could save you some cash when you file your return next April and who out there cannot use extra cash?

A key item to check on is to see if you have paid in enough income taxes in 2013 to avoid under payment penalties.  If you owe more than $1,000 when you file your federal income tax return you could be assessed additional penalties and interest for underpaying the tax.   To avoid this additional charge look at line 61, total tax due, of form 1040 from your 2012 federal tax return and compare that figure to the amount of federal taxes you have paid in for 2013.

When looking at your pay stub for total federal taxes paid in do not take into account the social security or medicare withholding, only the federal income tax withheld.  If line 61 of your 2012 federal tax return is less than your 2013 tax payments you should not be subject to under payment penalties.  If the 2012 amount is greater than your 2013 payments you will want to make an estimate tax payment now.  Use federal form 1040ES and Michigan form MI1040ES for the estimated tax payments.

If you are currently making estimated tax payments and you itemize you will want to make the Michigan payment in December instead of January so that you get the federal tax deduction a year yearly.  The federal payment can wait until January 15

Are you thinking of making additional charitable donations?  Make sure the check is written and mailed before year end.  And for ALL donations you must have a receipt. So when you put $5 into the red kettle this year get a receipt from the bell ringer or that donation will not be deductible.

Also, buying a raffle ticket from a charity is not a donation neither is buying Girl Scout

cookies and related items.  In addition, if you buy a ticket for a spaghetti dinner sponsored by the school but do not go to it, that is not a donation.  If you go to the dinner you are getting something of value so no donation there either.  If you buy the ticket but don’t go to the event you most give the ticket back to the charity when you buy it for the contribution to be deductible.

In general, if you are getting back something of value when you make a donation, all or a portion if that donation is not deductible.  And donations made to the benefit of a specific individual, even if to a charity, are not deductible.

Because of the government shut down this October those of you who always file their taxes in January maybe delayed.  For those who don’t file until later in the year, there should not be a problem.

Every tax  situation is different so you may want to check with a Certified Public Accountant to see how the various tax rules affect you.

Len Pytlak, CPA and member of the Board of Directors of the WWBA