Tax Planning Now is the Key
Author: Keith Huggett
While the fiscal cliff may seem like the end of the world, in some ways it's no different than what we've seen before. With a couple of exceptions, it doesn't change how taxes work. It just makes them cost more. With that in mind, your tax planning should not necessarily be based on doing completely different things but, instead, on doing more of the right things. Here are three must-dos before the end of the year that you can do in conjunction with other sound tax-planning practices:
- Take as much income this year as you can. If we hit the cliff, you will pay much higher tax rates next year. As such, it is in your best interest to take as much income as you can this year while tax rates are low. On your personal taxes, you should also maximize your deductions. If the discussions about capping deductions come to fruition, you could find yourself losing write-offs that you otherwise could have claimed.
- Claim your capital gains this year. Before he was elected to his first term, President Barack Obama signaled a desire to see the capital gains rate increase from its current level of 15 percent. Should those taxes increase, selling appreciated business and personal assets could become much more expensive. With this in mind, between now and the end of the year is an excellent time to lock in your gains at this attractive rate.
- Make capital investments. While it is a good idea to maximize your income, one write-off is too good to pass up: The Section 179 deduction, which allows some small businesses to expense rather than depreciate certain capital expenditures, will be severely cut back in 2013 if we hit the fiscal cliff. If you need capital equipment, buying it this year will let you write off more of the cost.
