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7 Last-Chance Personal And Farm Tax Breaks To Wrap Up

7 Last-Chance Personal And Farm Tax Breaks To Wrap Up
7 year-end personal and farm business tax maneuvers may give you a happier new year when the 'tax grinch' comes for your money.

While the Christmas season is to be about giving, it's tough to think about tax-savers to wrap up before year-end. You may be able to reduce the amount of money you give to Uncle Sam by considering the following personal and/or farm business tax breaks.

But don't delay, stress tax specialists at Stambaugh Ness business consulting, headquartered at York, Pa. Once the ball drops on New Year's Eve, these tax breaks will be gone.

7 Last-Chance Personal And Farm Tax Breaks To Wrap Up

1. Give cash or 'credit' to charitable donations: If you donate cash to charity in 2013, you can generally deduct it on your 2013 tax return. But if you don't have the cash on hand for an extra-generous contribution, one solution is to charge the donation on one of your credit cards. As long as the donation is posted with a December date, it's still deductible in 2013 — even if you don't actually pay the credit card charge until 2014.

2. Balance investment holdings: Take a look at your portfolio for underperforming stocks that can be sold at a loss by year-end. You can deduct up to $3,000 worth of net capital losses (in excess of gains) against other income. But be careful. If you make a "wash sale" by buying back the same security within 30 days, your loss will be disallowed.

You can also reduce your capital gains or magnify your losses by selling your highest-cost shares with the "specific ID method." To take advantage of this method, you must tell your broker at the time of the transaction which shares you want to sell.

Ask your broker for a written confirmation. Without this procedure, you must use the "first-in, first-out" method, which means the shares you acquired first must be considered the ones sold.

3. Secure college tax breaks: Do you have a college tuition bill coming due in early 2014? If you pay it this year, you can take advantage of the American Opportunity college credit or the Lifetime Learning credits by prepaying for academic periods beginning the first three months of 2014.

4. Take required IRA distributions: If you're due to take a mandatory withdrawal from a retirement account for 2013, be sure to complete that transaction by December 31. Otherwise, you risk a 50% penalty on the withdrawal you should have taken.

5. Consider a Roth conversion: December 31 is the deadline to convert a traditional IRA into a Roth IRA. You must pay income tax on the amount placed in the Roth account, but you escape taxes on future accumulated earnings. If the value of your IRA is currently down, the tax cost of converting your traditional IRA to a Roth IRA will be lower, too.

6. Reverse a Roth conversion: What if you converted to a Roth IRA earlier this year when your IRA was worth much more? You can change your mind by "recharacterizing" that conversion by the end of the year to a regular IRA. Once you recharacterize it, you can switch back or "reconvert" to a Roth IRA and owe a lower tax bill. But you have to wait 30 days to do so.

Remember that converting an IRA increases your adjusted gross income. That, in turn, can make you ineligible for certain tax breaks. A boost in your income can also make some or more of your Social Security benefits taxable. The rules are tricky, so consult with your tax adviser.

7. Make flexible spending account decisions and appointments: If  you have money set aside in a tax-advantaged FSA for medical expenses, you may have a "use-it-or-lose-it" feature on money left at the end of the year. Plan now to deplete that balance by filling prescriptions, buying eyeglasses or getting a dental check-up.

This fringe benefit enables an employee to pay health care expenses with pre-tax dollars earmarked in a special account. And, now's also the time when you must choose the amount to set aside for 2014. Consider the "use it or lose it" aspect before doing so.

There may be some flexibility, however, if your employer elected to allow a grace period. In that case, you have 21/2 months after the end of your plan year to spend that balance.

There's also a new, optional flexibility added to FSAs. It's a carryover option that'll allow you to carryover up to $500 to the next year without a penalty. Again, your employer must amend the company plan to allow that carryover. But a plan can't use the grace period and the carryover.

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