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Looking at ways to save as 2012 taxes approach

Photo for The Union by John Hart
John Hart | The Union

Regardless what you think of the fiscal cliff and its effect on the economy or the world as we know it, one thing is almost certain: Our taxes are going up.

Whether by the sun setting on the Bush tax cuts or an increase in rates or overall tax reform, the amount most of us pay, especially those fortunate enough to make more than $250,000 will increase in 2013. So instead of fretting about the inability of our elected officials to act like responsible adults and come to a deal, I suggest you take heed to some of my last-minute tax planning ideas, for this year.

Just like any other year, our tax planning strategy should be based on reason and not emotion. It should be based on our long- and short-term goals, and we need to remember to be mindful of the long-term consequences of our actions.



To illustrate the point, I have had clients ask me if they should sell all their positions in their taxable accounts in order to pay the lower 15 percent capital gain rate. On the surface, this may sound very reasonable. However, like we consistently tell our clients, investment decisions should never be made solely on tax considerations. We therefore reviewed his portfolio and determined that based on his long-term goals, current income and expected future income that some tax harvesting made sense; however, selling everything did not.

However, paying for next semester’s tuition early, makes sense, as well as accelerating any medical expenses since the threshold is set to rise from 7.5 percent to 10 percent. It also still makes sense to make charitable contributions to your favorite charity. If you have appreciated assets that you will not need for retirement, they should be first in line for donations. Cash still makes sense for gifting to family members, and the $13,000 annual limit still applies. If you have a closely held corporation, it may make sense to increase or take a special yearend dividend to take advantage of the current dividend tax rate. Buying depreciable assets makes sense as well should you have the need or have older equipment that needs replacing.




As always, maximizing your contribution to retirement plans will allow you to keep more money sheltered from the future tax rates until needed for retirement income. These limits are increasing every year and should continue to do so. So in the next two weeks, review your current situation with your tax preparer and or financial advisor and see what makes sense for your situation. At the end of the day, we should always plan to minimize our taxes regardless of what the current tax policy is and use the tools available now and not worry what might be.

Frederick Fisher is a CFP®, and Insurance Agent.  Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.  Ostrofe Financial and NPC are separate and unrelated companies.  For questions or suggestions, contact Rick Fisher at (530) 273-4425, or frederick.fisher@natplan.com.  Branch address:  565 Brunswick Road, Suite 15, Grass Valley, CA  95945.


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