Bay Area Estate And Tax Planning Law Firm

Worried about capital gains tax? Plan ahead.

On Behalf of | May 8, 2012 | Uncategorized |

Many of us in California have just finished sending in our personal income tax returns for 2011, but it isn’t too early to plan ahead for the 2012 return according to knowledgeable sources.

Planning ahead and making certain financial moves now may prevent you from paying additional capital gains taxes in the following year. In short — take the gains in 2012 rather than waiting until 2013 if you can.

According to industry sources, there is more than one way to minimize the consequences of taxes on capital gains. Why is this important? Because the so-called Bush tax cuts are set to expire on Dec. 31, 2012 and when that happens, the rates could go back to their previous level.

Currently, capital gains are taxed at 15 percent. If the tax cut expires, the rate will go up an additional 3.8 percent for families earning more than $250,000 per year. Congress may still extend the tax rate, but that is a highly debatable notion.

Sources recommend a few plans of action to pursue prior to the expiration of the capital gains tax lower rate.

  • Use any gains this year to invest in municipal bonds because as tax rates go up, so does the value of the bonds.
  • Sell your business this year rather than in 2013 if that is a realistic option.
  • Sell stock assets and diversify.
  • Take an IRA Roth conversion in 2012 for the tax advantages later.

Everyone’s situation is unique, so any decision to mitigate tax consequences should be done with a holistic view of your total financial situation and with the advice of your financial and legal consultants.

Source: Examiner, “2012 Tax Considerations,” Christopher Hanson, April 30, 2012