This is the promised follow-up to my 11/21 post about year-end tax planning in 2012. As you may remember, I mentioned that this may be the year to go against the conventional tax planning strategy of deferring income into the following tax year and accelerating deductible expenditures. If you anticipate being in a higher tax bracket next year here are the first 13 of my "Sweet 16" list of tax strategies for 2012.
1. Harvest capital gains. Sell those securities for a gain now instead of in 2013
2. Cash in on qualified dividends. Qualified dividends are currently taxed at a favorable rate but will be taxed as ordinary income if the Bush era tax cuts are allowed to expire. The date dividends paid are tough for an investor to control but you may want to dsicuss this option with your broker.
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3. Pull the trigger on Roth conversion. If you were considering converting a traditonal IRA to a Roth IRA, you may want to do this in 2012 versus 2013.
4. Pay out year-end bonuses. If possible, you may want to arrange to receive this bonus in 2012 versus 2013. If you are a business owner, you may want to do the same.
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5. Keep installment sale flexibilty. If you sell real estate through an installment sale, the gain is automatically spread out over time. You may want to elect out of installment sale treatment and pay all of the tax in 2012 at the curent lower rates.
6. Split income with the family through direct gifts or through trusts. Be careful of the "kiddie tax" which may circumvent the benfits of the transfer.
7. Take action on stock options. If you are holding stock from previous ISO exercises, and you have held the stock for more than 12 months, you may want to sell the stock in 2012 to "lock-in" the 15% Federal tax rate.
8. Speed up retirement account distributions. If you are currently receiving "required minimum distributions" (RMDs) from an IRA and qualified retirement plans, you may want to increase the amount you receive this year and this year only.
9. Hold off charitable gifts. Push your planned December donations into January.
10. Don't prepay state and local taxes. Again, push them into 2013.
11. Skip the "extra"mortgage payment. Again, double up in 2013 versus 2012.
12. Trim home office deductions. If you had some expenditures you were planning on incurring in December, move them back to January of 2013.
13. Bunch up medical expenses. This strategy is slightly more complicated. Starting in 2013, qualified medical expenses in excess of 10% of adjusted gross income, versus the 7.5% in 2012, will be deductible. This tax change does not effect anyone who is over 65. Therefore, you may want to schedule nonemergency physician and dentist visits in 2012 versus 2013. If you have no shot at a 2012 deduction, you might as well postpone expenses until 2013.
