Last Chance & First Chance: Tax Planning

Today certain financial accounts must be opened and transactions must be made in order to be in effect for 2012.  Specifically, today is the last day to sell stocks to realize gains in 2012; the last day to make a 2012 charitable donation, or to pay deductible expenses; the last day to take a 2012 IRA distribution and pay tax on the 2012 tax rates; the last day for a 2012 Roth IRA conversion; and the last day to open an individual 401(k), Profit Sharing or Money Purchase plan for 2012.    

Now looking forward, yes, it's also time to start tax planning for 2013 and for most of us it takes at least a few months to get educated on available tax opportunities, identify the best approach to take, and implement a tax plan. Early 2013 may be a particularly frenzied time for tax planning due to Bush tax cuts that are expiring....so it's important to get started as soon as possible. 

Effective January 1, 2013, taxpayers with adjusted gross incomes greater than $200,000 will be subject to an extra .9% Medicare tax paid on earned income, with an additional tax of 3.8% on their passive net investment income. This unearned income includes dividends, rental income, capital gains, interest, passive business income, and royalties.

The higher Alternative Tax Exemption or AMT patch is yet another tax provision to watch out for, with a current exemption of $74,450 dropping down to only $45,000 in the coming tax year. Although AMT may not have applied to many individuals in the past, the tax is greatly expanding its reach and may give individuals reason to plan more carefully for the coming year.

When it comes to estate planning and taxation significant changes are also going to take place. Estate tax will increase from 35% this year to 55% in 2013. Unless Congressional action is taken, even the lifetime exemption amount may go down from over $5 million to $1 million.   Getting a head start on tax planning for 2013 ensures financial stability for you and the future of your family - so as we watch what develops today with our lawmakers regarding the 'fiscal cliff' - note we'll be closed tomorrow, New Year's Day...and open to answer all your questions on Wednesday, January 2.   Have a Happy and Safe New Year.