Photo: 401K 2012 (Flickr)
The stalemate over the looming fiscal cliff has some people doing tax planning in reverse. If Congress and the White House can‘t make a deal that extends the Bush tax cuts, everyone‘s taxes will go up, and those with capital gains will see a five-point increase in that tax rate.
Those changes apply to next year‘s taxes, but some taxpayers might try to push income to 2012. Sikich LLP Accountant Dave McDaniel says selling off investments in 2012 puts the capital gains in the year in which the tax rate is certain.
And some businesses may try to collect from vendors before year‘s end rather than risk the rate being higher in 2013. The same principle applies to deductions.
“Deductions would be worth more against a higher tax rate, so things like state income taxes — when you make that payment,” McDaniel says. “Charity is another one; usually at the end of the year, we say now is a good time to do charity, but if you‘re going to be in a higher tax rate later?”
But McDaniel cautions your decision depends not just on your faith in Washington, but on how close you are to the next tax bracket. If you‘re too near the line, loading up income in 2012 could backfire by pushing you into a higher rate.