‘Tis the season for holiday cheer … and last minute tax planning. Bah humbug! With the tax year about to end, tax season will officially begin; it’s finally the time to ensure that you will not need to hire a tax relief attorney in April 2013.
My usual end of the year advice includes comparing your prior year tax returns with your present year income, tax withholdings, financial transactions, and withdrawals to determine whether you need to make late December moves to ensure you don’t owe a tax debt. This usually includes ensuring that you properly withheld taxes on your income throughout the year and/or made your estimated tax payments, and invested accordingly. While this advice is still sound, as of the date of writing of this article, if things in Washington D.C. remain the same, my advice also includes, earn it now if you can.
Being mindful to not illegally manipulate your income, i.e. you earn your income when you have a right to receive the income; accelerate your income in 2012, if you can. Since your tax rate may increase beginning January 1, 2013, the money you earn now is worth more now than it will be in just a few weeks because your tax rate is likely to increase. Likewise, self-employed individuals who have the ability to time the payment of deductible expenses may want to defer those expenses for tax year 2013, because those expenses will be more valuable in tax year 2013 than in tax year 2012.