2013 tax planning for deductions and credits

abstract tax form

(MoneyWatch) A few days ago I wrote about 2012 year-end tax planning and focused on two considerations: Should income be accelerated into 2012 or deferred into 2013? The same thinking goes for whether or not you should make some financial moves to increase the deductions and credits that can be claimed in 2013.

If tax rates and rules for 2013 were known, this would be fairly straight forward. The problem is that this year it's more challenging to do this because no one really knows what the tax laws will be in 2013. With all of the debate swirling in Washington, I think it's a safe bet that folks with higher incomes will have higher tax rates in 2013. For those folks, taking more deductions in 2013 will be more valuable than claiming the deductions in 2012. So here are a few financial moves that result in increasing the deductions and credits you can claim in 2013.

Move deductions and tax credits to 2013

Pay expenses and make charitable contributions which can qualify as itemized deductions in 2013. When you do this, you may not have enough deductions to itemize in 2012 but you can still claim the standard deduction.

Postpone paying certain tax-deductible expenses such as property taxes until 2013.

Pay any state estimated tax payments for the last quarter of 2012 in January 2013.

If you own a business or are self employed, purchase equipment before the end of 2012. The current Section 179 deduction amount declines in 2013 to $25,000 and the generous 50 percent bonus depreciation ends in 2013.

Consider AGI limits

Some out of pocket medical expenses may also be deductible. But for these deductions, there is a threshold where these must exceed a percentage of your adjusted gross income ("AGI") before any amount can be claimed as a deduction. For certain expenses such as elective surgery, dental work, and eye exams, it would be better to have it done in the year that you are already above the applicable AGI threshold. On the other hand, it may be better to incur these expenses in 2012 where the applicable AGI limit (7.5 percent) is lower than the 2013 AGI limit (10 percent for those under 65). Take a close look at your particular situation.

Also, there are a few dates by which certain financial accounts must be opened and transactions must be made in order to be in effect for 2012.

Dec. 31, 2012

Last day to sell stocks to realize gains in 2012

Last day to make a 2012 charitable donation, or to pay deductible expenses

Last day to take a 2012 IRA distribution and pay tax on the 2012 tax rates

Last day for a 2012 Roth IRA conversion

Last day to open an individual 401(k), Profit Sharing or Money Purchase plan for 2012

April 15, 2013:

Last day to make a 2012 IRA contribution

Keep in mind that some of these year-end income tax strategies are not best for all tax payers. You have to take into account the tax laws for this year and what you think will be the tax laws for 2013. Also, when prepaying deductible expenses, think about cash on hand and cash flow. While these are not tax related, they are important financial considerations.

As always, it's strongly advised to turn to a tax professional to look at your specific income tax situation to help to determine the best year-end tax planning strategy for you.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.