Next year, unless Congress acts before the end of 2012, year-end tax planning will be challenging. Since 2013 tax rates are set to go up, the conventional wisdom of deferring income into subsequent years should be reconsidered. Thus certain high-income taxpayers may want to actually accelerate income into 2012 rather than deferring income into 2013 when the tax rate will probably be higher.
If you expect to be in a higher tax bracket in 2013, there are a few tax planning strategies you should consider:
• Consider selling real estate, securities and other assets held more than one year in 2012, rather than deferring such gains to future years.
• The tax rate on qualified dividends could go from 15% to as high as 43.4% in 2013. Regular corporations and S corporations with excess earnings and profits should look at making dividend payments before the end of 2012.
• Business owners may want to consider pushing into a subsequent year such deductions as retirement plan funding contributions, year-end bonuses and other controllable expense deductions. Asset acquisitions eligible for Sec. 179 expensing could be deferred until 2013, and not electing the 50% bonus depreciation on 2012 assets purchased could be considered in order to increase depreciation deductions in later years.
• Estate and gift tax rates are set to rise from the current 35% rate to a maximum 55% and the lifetime exclusion is decreasing from $5.12 million to $1 million. Thus taxpayers with even modest sized estates should undertake a thorough estate plan review.
Of course, it is difficult to know if Bush tax rates will be extended again for all or just some taxpayers. However, you should be prepared to implement these strategies if tax rates go up significantly.