This is typically the time of year when investors and advisors are deep in the throes of year-end tax planning. But to do tax planning appropriately, you really need step back and take a two-year approach.
This is not a typical year. It could be as late as mid-December before we know what the tax situation will look like. Here are some tips Bill Bischoff gave in an article on MarketWatch for middle income investors who are trying to position themselves for whatever might happen.
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Bischoff thinks that taxes on ordinary income (wages, self-employment income, interest, and short-term capital gains) will be extended through 2013 for single people making under $200,000 and couples making under $250,000 per year.
But long-term capital gains and dividend tax rates are likely to go up.
If your itemized deductions are likely to be close to the standard deduction amount—either slightly over or slightly under—you may want to bunch together expenditures for these deductions every other year while claiming the standard deduction in the off years.
If you definitely are able to itemize, you may want to accelerate deductible items into 2012 if you expect to be in the same tax bracket in 2013.
Some of these write-offs would include mortgage interest that would be paid in the January 2013 payment and state and local income and property taxes.
If you know you’ll become subject to the alternative minimum tax (AMT) in 2013, forget about accelerating those deductions. State and local income and property taxes are disallowed under the AMT.
to find out more of Bischoff’s tips. Meanwhile, this is a great opportunity to have the conversation with your clients that they should take a longer-term view in their tax planning.
It’s just no longer feasible to limit tax planning to the end of the year since tax laws themselves are changing on a multi-year basis.