Tax, Estate & Financial Planning for an Uncertain ‘Fiscal Cliff’ Landscape

The election’s over and the new year is rapidly approaching, yet many tax law changes are still up in the air. With several provisions set to expire and other new provisions set to go into effect, taxpayers could feel a difference in their pocketbooks come 2013. The tax planning challenge this year is not knowing whether Congress will act on these scheduled changes.

Expiring Provisions

The so-called “Bush tax cuts” will expire December 31st, unless Congress extends them.

Related to individuals: Individual income tax rates will rise to a maximum of 39.6 percent, long-term capital gains will no longer be taxed at 15 percent and will instead be taxed ordinary income tax rates (maximum 39.6 percent).

Related to estate and gift taxes: The estate and gift tax exemption will sharply decline from $5.12 million to $1 million, and estates with assets greater than the $1 million exemption will have higher tax rates in 2013.

New Provisions Related to Healthcare Reform

Certain taxpayers will see a new 3.8 percent Medicare surtax on net investment income, such as interest, dividends, capital gains, and unearned income of estates and trusts. Additionally, the Affordable Care Act will add an extra 0.9% Medicare tax to the current 2.9% Medicare tax on earned income in excess of $200,000 for individuals and $250,000 for couples married filing jointly and $125,000 if you are married and file separately.

Capital Gains Rates

If capital gains rates rise as scheduled, tax planning strategies will be very different this year. Instead of traditional year-end tax planning strategies, such as deferring income, accelerating deductions, and offsetting gains and losses if possible, this year, individuals should consider accelerating income, deferring losses and deductions. You should consider harvesting gains in your investment portfolio to take advantage of the lower rates before the end of 2012. If you sell in 2013, it could result in more tax because of the higher capital gains rate.

Continue reading this financial planning article at CITYVIEW.


Louis Balbirer, MST, CPA, is a Tax Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.