(Editor’s note: This is the first in a three-part series on tax-planning considerations and strategies for tax year 2012.)
With the political uncertainty typical of a presidential election year, navigating year-end tax planning can be quite a challenge. Planning for 2012 is particularly difficult because many Bush-era tax initiatives are set to expire and tax rates to increase in 2013. Without a crystal ball, taxpayers should work in concert with their financial advisers to plan as best as they can with the information currently available and despite the uncertainties. To help ease the process, here’s an overview of various 2013 tax scenarios and how they might affect 2012 year-end planning.
Most 2012 income tax rates are scheduled to increase in 2013, and many tax breaks are set to expire. The two presidential candidates have vastly different proposals for addressing these scheduled changes. Whoever wins, there’s no guarantee that his proposal will become law.
In fact, unless the winner’s party also controls a majority of seats in the House and at least 60 seats in the Senate, it’s probably unlikely that his proposals will be passed in their current form.
All of this uncertainty complicates traditional year-end tax planning. To reduce your current year’s taxes, you generally must implement tax-reduction strategies by the end of the year. But many strategies depend on how your income will be taxed this year versus next year, as well as on what tax breaks will be available each year.
If Congress does nothing, 2013 ordinary income tax rates will be higher for most taxpayers. President Barack Obama has proposed retaining 2012 rates for only the middle and lower brackets – taxable income below $200,000 (singles), $225,000 (heads of households) or $250,000 (married filing jointly; $125,000 for separate filers). Gov. Mitt Romney has proposed reducing tax rates below 2012 levels for all taxpayers.
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.