Year End Tax Thoughts in Orange County CA

 

 

I wanted to share with you some Tax advice from my Investment advisor: Bruce Lefavi: 

“As we do each year, we’ve put together some helpful tax planning tips to consider before year-end. This year is especially concerning for many as we approach the end of the Bush tax-cut era and transition into what most expect to be a higher tax rate environment in 2013 and beyond.

The good news is that there is still time to take advantage of favorable 2012 tax rates and laws that will put you ahead of potentially higher taxes beginning in 2013.

Tax Strategies

1. Take Capital Gains in 2012: If things go as scheduled, the historically low long-term capital gains rate of 15% will increase to the previous rate of 20% or possibly even higher. We do know for certain that under Obamacare, there is a Medicare surtax of 3.8% (Saunders, 2012) on investment income for taxpayers whose incomes are above $250,000(joint) and $200,000(single). Selling positions in your after-tax (non IRA) accounts before year-end ensures you will max out at 15% capital gains treatment, versus an uncertain yet certainly higher rate in the future.

2. Take Losses, but Defer to 2013 and Beyond: The same logic applies here, except you are locking in losses. If capital gains rates do indeed go up, your losses may be more valuable next year and in years to come. Sell investments with a capital loss in 2012 but carry the loss forward to be utilized against future gains. Again, this only applies to assets held outside of deferred accounts like IRA’s and annuities.

3. Taxpayers in Bottom Two Tax Brackets, Take All Long-term Gains NOW!: This one is a no-brainer…the capital gains rate is ZERO on realized long-term capital gains (held at least a year), for individuals in the 10 & 15% tax brackets. Many retirees, despite very large nest eggs, maintain a very low tax rate. If this is you, by all means take advantage of this prior to 2013 as this little gift goes away at the end of 2012.

4. Hold Off on Large Charitable Donations: If you were planning to make a considerable charitable donation, it might make sense to hold off until 2013 before donating the gift. Higher tax rates will increase the value of charitable contributions in 2013. Taxpayers can defer large charitable contributions from 2012 to 2013 and obtain a larger tax benefit from the contribution next year.

5. Roth Conversion: If you are going to see your income rise in the years to come, therefore putting you in a higher tax bracket, it might make sense to convert a portion of your IRA to Roth. In order for this to work, you must have sufficient funds outside your IRA’s to pay the taxes. This will make the most sense for individuals in either the lowest or highest tax brackets.

If you aren’t using your RMD’s and have charitable intent, wait to take RMDs until Congress announces whether or not it is extending Charitable IRA donation rule: The last few years IRA owners over age 70.5 who are taking Required Minimum Distributions have been allowed to donate 100% of their required minimum distribution, up to $100,000, to a charitable organization; thus by-passing any taxes owed on the distribution. This is a much more prudent tax strategy than gifting after-tax funds and then claiming as a deduction. Stay tuned as we will surely pass along any updates on this highly favorable rule.

Taxpayers should consult with a tax advisor before applying these tips or other tax strategies. These strategies can be rather complex and we strongly recommend gaining the input of your tax advisor prior to implementing. We are happy to speak directly with your tax advisor regarding the application of these tips or any other tax strategies. Remember, our goal is to “Bulletproof” all areas of your financial life!”

Now is the time to think about year end actions. Buying an investment property this year will get you low prices and low interest rates. Contact us anytime

www.MarleneDietrichNewportRealEstate.com MarleneDietrich@Realtor.com  949-400-1021

Marlene, Tony & Mike