Year-end tax planning

November 27th, 2012

Although the 2012 election dust has begun to settle, the likely 2013 tax environment is still murky as ever. What will our President propose for his tax “reform.” Will the “Bush tax cuts” really be allowed to expire? Will our Senators and Representatives really begin to accomplish things cooperatively? Those answers elude me likely as much as you.

So in this current environment with the tax mysteries of 2013 in the future, all I can suggest in the way of year-end tax planning is that we do know the rules for 2012 and there are some tried and true methods to minimize Uncle Sam’s tax time demands come April 2013.

1. Managing Your Standard Deduction. If 2012 itemized deductions are close to your standard deduction, it may be possible to manage whether your standard deduction of itemized deductions will be the 2012 rule. Example – defer paying that mortgage at the end of the year and pay it in early January. Or going the other way, prepay your real property taxes. Why these examples? Because they are the usual Big ticket items in deductions.

2. Check your taxable investment assets. Have losses? Sell them to create offset for long term and short term capital gains! Have long term gains? We do know the maximum tax rate on long term gains for 2012 is 15%! Oh, and there’s nothing wrong with creating tax losses you might not use this year – any excess will be carried forward to 2013 and beyond.

3. Defer income or accelerate deductions. If you are a cash-basis business owner, send out invoices late in December. Likely the cash payments won’t be received until 2013. And if you project 2013 to be a banner year, then don’t pay those various accounts payable until early January.

Since I am committed to keeping Biz Law News simple and clear, I must stop. The essential points are (a) most business owners to one degree or another do engage in year-end tax planning and (b) others, like your tax advisor, will be familiar with your person circumstances and can better guide you through the range of possibilities!