[caption id="attachment_466" align="alignleft" width="150"] Frank J. Basile, CPA[/caption]
In Part 2, we looked at the effects on wage earners, self-employed, gifts and estate tax. Here, we will discuss some strategies to minimize the effects of these changes.
Taxpayers may want to consider some of the following strategies to minimize the effect of the scheduled tax changes:
- In light of the new 3.8% Medicare tax, taxpayers should examine any passive activities to see if they can establish material or active participation in any income-generating activities. Since tax-exempt bonds and other similar tax-exempt investments are not subject to this new law, compare the yields on such investments against the effective return on taxable investments after factoring in this new additional tax.
- All taxpayers may want to consider any possible acceleration of income into 2012 before year-end to take advantage of lower rates in 2012. Likewise, they may want to defer deductions until 2013 to take advantage of the higher rates in that year. Any taxpayers considering selling a business should try to close the sale in 2012 to avoid the jump in capital gains tax.
- Taxpayers should consider the option to beneficially transfer wealth prior to year-end given the potential that the generous gift, estate and generation-skipping environment may be short-lived. Interest rates and asset values are at historic lows, providing opportunities for lifetime giving. Furthermore, with the potential for legislation to limit some of the beneficial planning strategies now available, acting before year-end to take advantage of the current wealth transfer environment may be very beneficial. In particular, taxpayers may want to consider using the entire lifetime gift exemption of $5,120,000 available this year.
In this uncertain tax landscape, taxpayers will need to be aware of the latest legislative developments and keep a flexible game plan. Now is the time to plan your taxes—not after the year is over. The ability to make quick and well-informed decisions before year-end could mean a considerable difference in your 2013 tax liability.
We would love to talk to you to see how these changes will affect you and your family. Give us a call:
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Posted on Thu, January 17, 2013