Although we now have the election results,  year-end tax planning for 2012 will still be quite tricky since there are so many unanswered questions. We now know that the new healthcare reforms are here to stay, but we are still uncertain about whether some or all of the Bush Tax cuts will be extended.  However, ignoring the guaranteed upcoming tax changes will only result in additional headaches in later years.  It would be best now to analyze your current tax and financial situation and consider what your options will be. Here are some examples of year-end strategies to consider for 2012:

  • Higher income earners may want to review their overall investment strategies because of the new 3.8% Medicare contribution tax that will go into effect January 1, 2013. 
  • Since there is a possibility of tax rates increasing in 2013; it may be beneficial to accelerate income into 2012. For example, some retired taxpayers take distributions from their retirement accounts in January to cover their annual expenses. It may be a good idea to take those distributions in December 2012 to take advantage of the lower tax rates.
  • If capital gain rates increase to 20% from 15% in 2013, it may be advantageous to realize some of your long-term capital gains before year-end. If you are considering selling short-term investments, you may want to consider waiting more than one year before selling. Short-term capital gains are taxed at ordinary income tax rates, whereas, long-term capital gains are taxed at much lower rates.
  • If dividend rates increase from 15% to ordinary income tax rates, investors may want to consider shifting dividend paying investments to tax-deferred accounts.
  • Business owners should consider purchasing new qualified assets that they were planning to purchase next year in 2012 since the bonus depreciation will not be available in 2013. Business owners may also want to consider 2012 asset purchases since the Section 179 expensing limit will be reduced to $25,000 (from $139,000 in 2012) in 2013.