2012 Year-End Tax Planning Ideas

Will tax cuts will be extended?

Year-end Tax Planning is important every year, but 2012 is even more important with a lot of tax cuts set to expire at the end of the year.  Will the tax cuts set to expire be extended?  That would require a crystal ball at this point.  However, for proper planning as we approach year-end tax planning time, we need to go on things that we know for certain.  The certain thing is that a lot of the tax cuts will expire this year and we need to plan accordingly.  We will briefly go over several areas this year that taxpayers might want to discuss with their tax professional.

1. Capitalize On Expiring Long-Term Capital Gains Rates – Currently the Long-Term Capital Gain rates are maxed out at 15%.  Taxpayers in the 10-15% income tax brackets can capitalize by selling some stock that they currently have Long-Term Gains on and take advantage of 0% tax on those.  All other inpiduals can take advantage of the 15% maximum Capital Gains rates that are set to go up in 2013.
2. Qualified pidends – Taxpayers that own businesses that were formerly C-Corporations and are now S-Corporations will want to look to see if they have prior C-Corp earnings in their retained earnings.  (Also known as E&P)  If they have prior C-Corp earnings they will want to look at taking those as pidends and capitalize on the low qualified pidend rates.  Currently the qualified pidend rates are treated like the Long-Term Capital Gain rates.
3. Roth IRA Conversions – Taxpayers thinking about converting their Roth IRA’s to regular IRA’s might want to consider doing this before year-end.  With tax rates set to go up next year, this year would be a good year if one is going to eventually do this or is thinking about doing this.
4. Gift Tax & Estate Planning – We have talked about basic gift tax facts in a previous blog.  There is the normal $13,000 that can be given per year that will continue on past 2012, however the big annual exclusion of $5.1 million is set to go away at the end of the year (going down to $1 million next year).  So it might be wise to do some estate planning before year-end for wealthy inpiduals wanting to lower their estate value.
5. Accelerate Income In 2012 – Most of the time when we are looking at tax planning we are wanting to defer income into the next year.  With income tax rates set to go up, 2012 would be an ideal year to do a nice mix of accelerating income and deferring some income.  Some examples of this would be a company doing their billing a little earlier in December than normal and paying expenses in January as opposed to December.  A healthy mix of the two (accelerating and deferring income) will need to be looked at on a taxpayer by taxpayer basis as each situation will be different.

These are a few areas that are of importance for 2012 year-end tax planning with tax cuts set to expire.  Don’t forget to setup your tax planning meeting this year to take advantage of things you can do before year-end.  Saving on your taxes helps inpiduals and businesses both to pay off debt and build up an emergency fund.  Let us know if we can help you in any way, feel free to contact us.  We would love to help you with all of these tax planning tips as well as many others.

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