Year-end tax planning is rarely easy. And this year the task has been greatly complicated by a slew of upcoming tax code changes.
After the Nov. 6 presidential election, the House of Representatives has just 16 working days before adjourning on Dec. 14.
What will the new tax rules look like?
Tax experts foresee two possible outcomes: 1) A temporary extension of current tax rules, or 2) A dogfight between political parties that blocks extensions of current tax-rates, setting the stage for current rules to expire by year-end.
Let’s analyze four tax saving strategies ahead before 2012 ends.
1. Sell Assets, Selectively
The prospect of a top long-term capital gains rate on stocks, bonds, and other securities jumping from 15% this year to 20% next year has investors rightly worried. Additionally, high income earners will face a 3.8% tax on investment income.
Instead of rushing to cash in everything, advisors can help their clients to identify just the winning investments they were planning to sell anyway. Selling carefully selected gainers by year-end will allow investors to lock in today’s low tax rates without disrupting their entire portfolio.
2. Harvest the Losers