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It might be a little too late in the game but I'm wondering what I can do now to increase my deductions for 2012? My wife and I file jointly and contribute regularly to 401(k). We haven't received W2's yet so we aren't sure whether we should contribute more towards 401(k) to switch to a lower bracket.

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The paystub should have how much you have deposited into your 401K. The w2 will come way too late to allow you to adjust your 401K – mhoran_psprep Dec 30 '12 at 4:40
Seeing "switch to a lower bracket" makes me wonder if you are clear on the idea of marginal tax rates - pay close attention to the last paragraph of mhoran_psprep's answer: being in a higher bracket doesn't affect the tax rate on all your income. – Tim Whitcomb Jan 3 '13 at 0:35

It is not clear, because of the uncertainty of the fiscal cliff negotiations, weather it is better to bundle the deductions into 2012 or 2013. If the tax rates, allowable deductions, phaseouts, and the AMT levels were known it would be easy to suggest possible actions. But rates could go up, or stay the same.

Besides IRA, charitable deductions, and prepaying your taxes, you could also:

  • Prepay your mortgage before January 1st. Doing so online will make it easier to prove.
  • Sell an investment to claim a capital gain before the rates change.
  • Sell an investment to have a loss that will offset gains that you had from earlier sales.

Which of of these you do will depend on how you expect the rates to change.

Remember the bracket you are in only impacts your last dollar earned, it doesn't lower the tax rate on all your income. Deducting $1,000 in the 25% bracket saves you $250 in taxes, deducting $1,000 in the 28% bracket saves You $280

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+1 Of course, selling an investment to claim a capital gain will increase the tax due for 2012 whereas the OP is looking for ways to reduce taxes due for 2012. On the other hand, I am glad that you pointed out the uncertainty about tax rates to the OP. If the OP was planning on selling an investment soon to realize a capital gain, and the only question was whether to sell tomorrow (December 31, 2012) to take the gain in 2012 or wait till 2013, it is not clear which would be better, given the uncertainty about 2013 tax rates. – Dilip Sarwate Dec 30 '12 at 14:20
+1, especially for the last paragraph. – Tim Whitcomb Jan 3 '13 at 0:36

Unless you have a paycheck coming on Monday December 31 and have already made arrangements to have a substantial portion of that go to your 401k, you are most likely out of luck on that front: payroll may already have processed your last paycheck. 401k contributions have to be withheld from your salary and be sent directly from your employer to the 401k plan administrator; you can't send the 401k administrator any money for deposit into the 401k plan. You have till April 15, 2013 to make a 2012 contribution to your Traditional IRA which will reduce your taxes for 2012, but the 401K cutoff is December 31.

Other possibilities:

  • Make charitable contributions preferably on-line via credit card since a check mailed now will likely get you a receipt for next year's tax return

  • If you make estimated payments of state income tax, mail in the 4th quarter installment by December 31 with a check dated December 31 or before, or make the payment on-line before January 1, 2013.

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