Year-end tax tips to leverage old and new rates

Timing of transactions might save you some money

Tax-planning is a year-round activity, of course, but the end of the year presents the opportunity to take advantage of rules and rates that will likely change. Given the impending “fiscal cliff” that you have been hearing about, year-end planning for this year is more important than ever. If Congress and the President do not come to an agreement on expiring tax laws, income tax rates for both ordinary income, dividends and capital gains will go up significantly for many people, payroll taxes will increase and estate and gift taxes will be significantly increased after the close of 2012. Beginning January 1, 2013, for taxpayers with income over a certain amount, there is also a new tax of 3.8% on “investment income” which will be allocated to Medicare under the President’s health care reform bill. Additionally, with the passage of Proposition 30 here in California, California tax rates are increasing, for many, retroactively for 2012.

Given all this uncertainty and change, there are certain tax strategies that may make sense to utilize, depending on your individual tax situation, prior to the end of 2012. It may make sense to accelerate the realization of certain types of income into 2012, and defer certain deductions or losses until after the end of 2012. The timing of stock or other investment sales requires careful consideration as well. But all of these decisions should be made keeping in mind your particular tax situation, including the effect of the Alternative Minimum Tax that may apply to many taxpayers.

With the expiration at the end of 2012 of the $5,120,000 individual exclusion for gifting, those with sufficiently large estates should also consider possible gifting strategies to be completed prior to year end.

We are, of course, happy to work with you on figuring out what is the best set of strategies that apply to your situation