What is the fiscal cliff? From a tax perspective, it is the expiration of more than 50 temporary tax provisions (extenders), the expiration of the Bush 2001/2003 tax cuts, the expiration of the payroll tax cut, and the expiration of the alternative minimum tax (AMT) patch.
You likely have read that Dillard’s Inc., the Las Vegas Sands Corp., Wynn Resorts, Walmart, Ethan Allen Interiors, and other companies are paying special dividends in 2012 or are accelerating their normal January 2013 dividends into December as an effective means to reduce the personal income taxes of their shareholders. These companies are maneuvering to shield their shareholders from the prospect of higher taxes in 2013. It is estimated that Steve Wynn will save $20 million in taxes by his Wynn Resorts issuing its special dividend in 2012.
While it is nice that millionaires and billionaires save millions in taxes, what can you do to save taxes and increase your wealth? You can . . .
- Discuss with your investment advisor about selling investments in 2012 that have capital gains. The current long-term capital gains rate of 15% is scheduled to increase to 20% in 2013.
- Consider avoiding the realization of losses on sale of depreciable property or investments until 2013.
- If your portfolio holds stocks that pay large dividends, discuss with your investment advisor if you should reallocate your portfolio since the top rate on dividends could increase to 39.6% from the current 15% rate. Additional planning considerations include the impact of the new 3.8% Medicare tax on investment income. Perhaps municipal bonds will become a more attractive investment option.
- If your business is a C Corporation, declare dividends in 2012 rather than in 2013.
- If you are selling your business or investment property and waiting for a higher price, ask your CPA to analyze the impact the higher 2013 taxes will have on your sale. Perhaps a lesser sales price in 2012 would be more attractive than a higher 2013 sales price.
- The lifetime gift and estate tax exemption drops from $5.12 million to $1 million in 2013. Married spouses can double this amount. If you have significant wealth that you wish to transfer to your loved ones, you need to immediately call your estate tax attorney. The highest estate tax rate increases from 35% in 2012 to 55% in 2013.
Remember never to make an investment or business decision without considering the tax consequences. Also, be careful about allowing tax considerations to cloud sound business and investment planning.
Please be sure to read the disclaimer page on our blog. This blog is for educational purposes only and should not be considered as the rendering of tax advice.
