Tax Planning?

By Steve Barlotta, CPA

Once again things didn’t work out as planned. As of today, we still have no clear picture as to what tax rates will look like for many Americans in 2013. There has been no break in the impasse between President Obama and House Speaker Boehner in their efforts to avoid the looming “fiscal cliff”. The “fiscal cliff” refers to tax increases and spending cuts that will automatically start on January 1st if the President and Congress don’t come up with a resolution in the next seven days or so.

There was part of me that was hoping that the Mayan prophecy would be fulfilled and we wouldn’t have to deal with this mess. But, here we are with a $1 trillion deficit and a $16 trillion national debt and no long-term solution from Washington in sight. I really have no new information or words of wisdom to impart on you. As I said last month, we know that taxes will increase for upper-income Americans in 2013; it’s just a question of how much.

Here are some last minute tax planning ideas that I mentioned in last month’s blog:

• Accelerating salaries or bonuses in 2012 to avoid higher tax brackets applicable for 2013 and to avoid the new .9% Medicare surtax applicable to upper-income taxpayers.
• Exercising non-qualified stock options that are in the money before the year ends.
• Selling investments in the next few days to take advantage of the 15% capital gains rate.
• Deferring some of your itemized deductions until 2013 as the tax savings will be more effective if your subject to higher tax rates.

We’ll let you know if and when the President and Congress reach a deal. My guess is that they will come up with a short-term solution eventually while pushing off other major issues like tax and entitlement reform for another day. I’ll leave you with one point: in each of the last four years the United States has spent $1 trillion more than it has collected. We simply can’t afford to keep going down this road.