Investors Not Sufficiently Aware Of Need To Do End-Of-Year Tax Planning Of A Different Kind

Monday, October 22, 2012 20:36
Investors Not Sufficiently Aware Of Need To Do End-Of-Year Tax Planning Of A Different Kind

Tags: tax efficient investing | Taxes | US investing | year end tax planning

The end of 2012 is fast approaching and clients should be warned that it may be a last chance at taking advantage of low Federal tax rates.

Even if the fiscal cliff is avoided, taxes will be forced to go up at some point to reduce budget deficits.

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The advice is opposite to what investors typically do—push income into the next year. With the prospect of tax rates spiking if the fiscal cliff occurs, moving taxable income into 2012 may be a smart idea.
That goes for realizing capital gains, too. Federal income taxes are set to rise to 39.6% from 35%. Long-term capital gains will rise to 20% from the current rate of 15%.
There are only ten weeks left in the year and those waiting for Congress to take action on the fiscal cliff issue may be caught unawares.
Investors generally do not recognize how well investments in riskier assets like stocks, high-yield bonds, and real estate.
The last time capital gains tax rates went up significantly was 1986. Realizations of gains increased 91% to $328 billion from $172 billion in 1985.
Investors can realize their gains in taxable accounts, then move the proceeds to a tax-deferred individual retirement account (IRA).
Those will illiquid investments including private equity funds and hedge funds in their IRAs should consider moving them to a Roth IRA.
Those considering gifting assets should also do so before the end of the year since the $5 million exclusion is due to expire along with the current tax laws. The advice is to be tax savvy but not to be overly-focused on taxes when making investment decisions.


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