Although income tax planning is difficult during this time of uncertainty, taxpayers find themselves enjoying relatively favorable tax rates and rules for the remainder of 2012. The following are some strategies to consider before year end.
- The Basics – If you expect your tax rates to be higher next year, it might make sense to accelerate income into this year and defer deductions into next year. If you think your tax rate might be lower next year, consider deferring income to next year and accelerating deductions into this year.
- Prepayment of State Income Taxes – State income taxes are deductible for Federal tax purposes, as long as the taxes are paid on or before 12/31/2012. If you expect to be subject to Alternative Minimum Tax (AMT), then it is not necessary to prepay state taxes because all taxes are disallowed deductions for AMT purposes.
- Capital Gains and Losses – Consider harvesting capital losses at year-end to offset capital gains recognized during the year.
- Charitable Contributions – Consider contributing long-term appreciated securities instead of cash, as you can deduct the fair market value and avoid capital gain taxes.
- Funding Your Retirement Plans – To qualify for a deduction in 2012, your retirement plan generally must be in place before the end of the year, although some must be set up sooner. Exceptions are IRAs and SEP (simplified employee pensions) plans.
- Section 179 Deduction – Allows for the expensing of certain qualifying assets in 2012 for an amount up to $139,000.
- Bonus Depreciation – Allows for the expensing of an amount equal to 50 percent of the cost of qualifying property purchased and placed in service by December 31, 2012. The property must be new to qualify for bonus depreciation.
At First Western Trust, we work actively with our clients to develop effective tax strategies. For more information, please contact your relationship manager or a member of our Wealth Advisory or Portfolio Management team at 303.531.8100.
First Western Trust cannot provide tax advice. Please consult your tax advisor for guidance on the information contained within may apply to your specific situation.
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