12 Individual Tax Remedies for the Fiscal Cliff

1. Contribute the maximum to a 401(k) before 2013.

2. Increase the number of allowances taken to ensure lower withholding, which gives an individual use of their money earlier.

3. Avoid underpayment penalties by ensuring enough is actually withheld.

4. Do not defer discretionary income into 2013, when taxes are likely to rise. Record the income this year.

5. Plan deductions by investigating which ones may be more valuable for either 2012 or 2013.

6. Consider selling appreciated securities by Dec. 31. Even if Congress does not raise rates on capital gains or dividends, a new 3.8 percent surtax on unearned income for high-income individuals looms.

7. Convert traditional IRAs to a Roth. Withdrawals from traditional IRAs are taxed at the ordinary tax rate, while Roth withdrawals can be tax-free for those at least 59 ½ years of age. Even if tax reform next year lowers individual tax rates, the conversion can be undone if necessary until Oct. 15, 2013.

8. Avoid end-of-year mutual fund purchases in non-retirement accounts, since the payout of dividends will be taxable for 2012.

9. Give to charity and write off the donation.

10. In addition to giving appreciated stocks or mutual funds to charity, individuals 70 ½ years or age or older may be able to make a tax-free charitable distribution of up to $100,000 from their IRAs directly, if Congress approves an extension of that IRA rule.

11. Make individual gifts to family and others before 2013, when gift-tax exclusions are expected to be lower and maximum estate tax rates will rise.

12. Spend down 2012 flexible spending accounts if your employer deadline requires it by year-end.

Read more: Kiplinger: 12 Individual Tax Remedies for the Fiscal Cliff
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