2012 Year-End Tax Tips
2012 is almost over and 2013 tax policy hasn’t yet been set. With so much media coverage about expiring tax cuts, increasing tax rates, and the looming fiscal cliff, CPAs and business owners alike are worried about what the New Year will bring. All we want for Christmas is sound 2013 tax policy!
Currently, President Obama is struggling to rally a squabbling Congress; without agreement, big tax hikes are coming. Unfortunately, this might not happen until the New Year – after the higher rates have kicked in. So, what’s a taxpayer to do? You can write a letter to Santa asking him to make Congress come to an agreement or you can act now to help save money and insulate your business from expected tax hikes. Here’s what you might want to consider with the help of your CPA:
Consider your entity structure. This is an unusual year in that we expect individual tax rates to increase for anyone who makes more than $250,000, while corporate tax rates should generally fall. Small businesses that operate as flow-through entities are taxed as individuals – and could see their tax burdens go up. What should you do? Ask your CPA to review your entity structure and make any necessary changes before the end of the year.
Accelerate income and defer deductions. This is probably the opposite of advice you received in the past, but we’re not usually expecting rates to go up this dramatically. If your business operates as a flow-through, accelerate your income to 2012 to take advantage of the lower rates. And if your business operates on a cash basis, you might want to defer non-owner employee bonuses until the first week of 2013.
Accelerate itemized deductions. During campaign season, there was a lot of talk about closing tax loopholes, but loopholes are really credits and deductions. They’re only “loopholes” if you’re not the one benefitting from them. Unfortunately, the deductions you may want to take in 2013 might be someone else’s loopholes…and might not be around next year. You might want to take them while you still can.
Maximize capital gains. Capital gains rates also came under fire during the campaign; expect them to increase in 2013. Plan now to limit the impact on your portfolio. If you have assets that appreciated, sell them in 2012 to harvest gains at the lower tax rates. Defer harvesting losses until 2013 when they may be of more tax rate value. And if you closed a sale in 2012 that involved seller financing, you may want to lock in current rates. Consider electing out of installment sale treatment to lock in 2012 capital gains rates. You will want to discuss this approach with your financial advisor first as there may be reasons for holding on to your capital gains outside of the tax considerations.
Plan for the business and the family. If you plan on leaving your business to family, start the transfer now to avoid increased gift and estate taxes. These taxes don’t only apply to liquid assets, but to fixed assets like businesses. If you don’t plan for these taxes, your business might not make it to the next generation. If gift tax exclusions decrease and gift tax rates increase in 2013, Uncle Sam will get a bigger piece of assets transferred next year.
How do you make the transfer? A business valuation is the first step in gift and estate planning. This will help form your wealth transfer strategy. Depending on your situation, acting now could result in big savings.
The holidays are in full swing and with all the presents to buy and parties to attend, 2013 tax planning might not seem that pressing. But, these tax saving opportunities may only be available for a limited time offer so step away from the cookies, put down the gift wrap and act fast. Again, please be sure you discuss the above with your CPA and financial advisor prior to taking any action.
2013 Tax Planning Help
Concerned about your 2013 taxes? Worried about what the fiscal cliff could mean for you? Contact Rea & Associates. Our our Ohio tax professionals will help you develop a plan to save money now and in the year ahead. But, the New Year’s coming and these tax saving opportunities are going, so contact us (today!) to get started on your year-end tax planning.