Marianne D. Fishler, The Daily Record Newswire
It is particularly important to pay attention to your estate and income tax planning this year, as we approach the fiscal cliff, sunset of some attractive tax laws and the potential of some additional taxes. The following are some strategies you may want to consider as we move toward year end.
— Charitable giving: If you are philanthropically inclined, you may want to consider delaying any contributions you may make this year into next year. Unless Congress takes action prior to the end of the year, income tax rates will rise, and you can get a bigger bang for your charitable buck at a 40 percent federal tax rate than you can at 35 percent. Of course, this strategy assumes that your income will be the same or higher next year.
— Gifting: Unless Congress acts prior to year end, the federal estate and gift tax exclusion amount of $5.12 million per individual ($10.24 million for a married couple) automatically drops to $1 million. For high net worth individuals, this is the year to gift as much as you can without impairing your own lifestyle and liquidity.
Some strategies to consider — dynasty trusts, irrevocable life insurance trusts and defective grantor trusts. This strategy requires legal work and potentially life insurance underwriting, so time is of the essence if this is something you want to consider.
— Capital gains: If you have accumulated capital gains over the past few years, you may want to sell some positions and take the gains.
There are two reasons to do this. First, the long-term capital gains tax rate is set to go from 15 percent to 20 percent on Jan. 1. Add to that the health care reform tax (did you know about that?), which will add 3.8 percent in federal tax to investment gains. So in effect, capital gains will be taxed at 23.8 percent beginning Jan. 1. If you were considering some tactical portfolio changes, now might be an opportune time to reposition your portfolio.
A word of caution: taxes should not be the sole driver in constructing your investment portfolio, but it is one of many considerations.
— Accelerate income into 2012: If you have control of your income (like through an IRA or self-employment income), consider pushing more of your income into 2012 and taking less in 2013. Once again, unless Congress acts, the top federal income tax rate is set to go from 35 percent to as high as 43.4 percent.
When it comes to financial advice, there is no universal strategy that works for everyone. You should always discuss your individual situation with your financial advisor. And these strategies are mostly based on the premise that Congress won’t take action prior to year end. However, we can only plan based on what we know. It is interesting to note that the Bush tax cuts were extended as late as Dec. 17, 2010 (for 2011 and 2012). So there is still hope. But hope is never a good financial strategy.
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Marianne D. Fishler, CFP, is president and co-founder of Baltimore-based Foundry Wealth Advisors LLC. Investment Advisory Services are offered through Donnelly Steen & Co. d/b/a Foundry Wealth Advisors, a US SEC Registered Investment Advisor, 1201 N. Orange St., Wilmington, Del. Securities are offered through Coastal Equities Inc., member FINRA/SPIC, 602 Main St., Cincinnati, Ohio. Foundry Wealth Advisors LLC is a separate company from Donnelly Steen & Co. and Coastal Equities Inc. Contact Marianne Fishler at marianne.fishler@foundrywealth.com or 443-692-8833.
