2012 is entering its final quarter, and that means it’s time to start year-end tax planning. This year presents a bigger challenge than most, as the Bush-era tax cuts are set to expire unless Congress takes action soon. If the tax cuts expire it will result in higher tax rates for individuals, including capital gains and dividends, as well as higher estate tax rates.
What can you do to avoid the higher tax rates and hang on to more of your money? If you are planning to sell a capital asset that is likely to yield a large gain, such as inherited, valuable stock, or a vacation home in a desirable resort area, try to make the sale before year end, with due regard for market conditions. This year, long-term capital gains are taxed at a maximum rate of 15%, but the rate could go higher as noted above. Additionally, if your adjusted gross income exceeds $250,000 for joint filers or $125,000 for single or married filing-separate, you will get slapped with a brand new 3.8% “unearned income Medicare contribution tax” in 2013. Thus, if at all possible, bring future income into the 2012 tax year.