Many of the tax breaks we’ve all been enjoying for almost a decade are set to expire at the end of the year. That’s the bad news.
Worse: some of my clients will likely owe Uncle Sam more money next year — unless they do something about it. This is particularly true if you’re in the highest tax bracket, scheduled to go from 35 percent to 39.6 percent (even with a Romney victory, who has pledged to seek a lower tax bracket, a lame duck Congress is unlikely to play along). Also slated to increase are the tax rates on capital gains, currently at 15 percent for most investors.
But you can still make some moves.
Move #1: If you fall into this higher-taxed category especially, accelerate income into this year so you’ll owe taxes on the money at today’s lower tax rates. Talk to your employer about moving any bonuses or commissions into 2012 (rather than ’13).
Move #2: Regardless of your tax bracket, it’s also an ideal time to cash in some long-term winners in your portfolio so you can take advantage of today’s lower capital gains tax rates.
Move #3: Next, anyone can convert a traditional IRA to a Roth, again regardless of your income. Another impending tax, the Medicare tax on high earners, also has created more incentive to convert to a Roth. This tax is part of the health care reform law and will apply to investment income of higher earners starting in 2013.
Sit down with us, and let’s explore whether moving to a Roth is right for you. We’ll run the numbers to determine whether you should pay all your Roth conversion taxes this year at lower rates — or sit tight. This could make a big difference, depending on the rates.
In review: Take as much income as possible NOW. Again, with Congressional inaction quite likely regardless of the presidential election’s outcome, it’s likely that the oft-discussed “fiscal cliff” will hit us. So, if you’re able to realize capital gains, or have your employer accelerate any of your income, or perhaps convert to a Roth IRA, doing so for this tax year will be extremely beneficial, compared to 2013.
There are more moves to make, but they depend on your particular situation. It would delight me and my staff to no end to have the chance to set you up for paying the least amount of taxes possible for 2012 … so, let’s do something about this, shall we? Leave us a comment below to this article and how we can help you more!