Since it is Christmas the day after tomorrow, I am simply going to give you some quick year-end tax tips. But first, Merry Christmas to all of our readers. I now have three sons living in the Los Angeles area, so my wife, youngest son and I are headed down Christmas day to spend the holidays with them. Although today was unseasonably warm at 60 degrees, I think the weather will be warmer down there than here. Now for some tax tips:
- Make sure to pay your kids. If you are a schedule F farmer with children under age 18, make sure to pay them what they really earned this year. Children with no other income can earn about $6,000 this year tax-free (some states may require a little bit of tax) and the wages paid are completely deductible and even better, no payroll taxes are owed. Also, the child can take those earnings and contribute to a Roth account. If they put in $5,000 into an Roth IRA at age 17 and let it compound for 48 years until age 65, they will have about $80,000. That is just for one payment of $5,000.
- If you do not itemize and plan on giving money to your church or other charity at year-end, consider giving a commodity gift instead. This helps reduce your taxable income (you are still allowed the standard deduction) and reduces your self-employment tax burden (if a schedule F farmer or partner).
- On a similar vein, consider gifting grain to your child. You reduce your self-employment tax and if they hold the grain for at least a year after harvest will qualify for long-term capital gains treatment. If you make this gift, make sure to gift a prior year crop, not the current year crop.
- If you are over 70 1/2 or over and have not taken out your required minimum distribution from your IRA, consider making a direct gift to a charity. This can save taxes by reducing your adjusted gross income and in no case will it increase your tax. The maximum amount allowed is $100,000.
- Consider selling some grain on a deferred payment contract. This gives you flexibility after year-end if you need to bring income into 2013.
- Remember that prepaid expenses must be for a specific quantity of a specific product. If your prepaid simply shows "deposit", have your input company give you a correct invoice reflecting what was actually purchased (assuming you did make a correct prepayment).
- Section 179 is scheduled to drop to $25,000 next year. There is a good chance this will be higher, but we may not know until after the mid-term elections. If you need to upgrade equipment, purchase it this year.
- Review your tax for 2012 to determine if it makes sense to pay an estimated tax payment on January 15 and pay the remainder on April 15, 2014. This may be better than filing and paying all tax owed on March 1.
These are just some quick year-end tax tips. Most have been discussed in previous posts, but just wanted to remind you of certain things to do before year-end. You can always search the blog to read up on these tips in more detail.
Again, Merry Christmas to everyone!