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Year-end techniques from the edge of the Fiscal Cliff.

With less than two weeks left in the tax year, the politicians haven't reached a "fiscal cliff" deal. The latest rumors combine some version of a tax increase for higher incomes with a cap on the value of itemized deductions.  For example, a dollar of income might face a 39.8% tax rate, while a dollar of charitable contributions might save you only 28 cents.  Other proposals would simply cap the amount of itemized deductions allowed, perhaps at $50,000.


While you should consult your tax advisor about your year end planning moves, some thoughts to keep in mind:
  • If you want your itemized deduction to count this year, to be sure you get a full benefit, you should have it mailed and postmarked this year if you pay it by check.  Timely mailed, timely paid is the rule here.

 

  • A charitable contribution or tax payment made with a credit card counts this year, even if you don't pay your credit card bill until next year.

 

  • Additional itemized deductions for state and local taxes won't reduce your 2012 federal tax bill if you are subject to alternative minimum tax this year.

 

  • If you choose to recognize a capital gain this year to avoid the pending tax increases, the trade date is considered the date the gain is taxed, even if the settlement date is later.

 

  • If you aren't planning to sell an asset in the next two or three years anyway, it might not make sense to pay tax on the gain now to avoid a future tax increase.

The politicians may not settle on the tax law until the last minute, so stay in touch with your tax advisor and stay flexible.

-Joe Kristan

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