Hold on to your wallet!
Now that the election is over many people are wondering "what's next?" on the financial horizon. Some are concerned about the "financial cliff" and how it will affect them if it is not changed. One thing we all know is that taxes are going up. With our new health care system there are many new or old taxes that are going to affect many folks depending on their tax bracket. If nothing changes between now and the end of the year here is a checklist of things to think about concerning your taxes.
Long Term Capital Gains:
As many of you know, the capital gains tax rate is currently 15% for most of us. Next year LTCG will jump to 20 to 23% depending on your income. So if you were thinking of selling one of those stocks that has a large gain that you have been holding on to for longer that a year, you might want to discuss selling it with your financial advisor and your tax advisor. This will also affect real estate that you own and are thinking about selling. Also any other investment assets that you have held longer that one year.
Dividends:
If you have a lot of dividend income you might want to look at what the effects of the new tax laws will be on your tax bill. The tax rate is going to 15% and could go as high as 43% based on your current income tax bracket.
Gifting to Family Members:
The gifting exclusion is going to 2 million dollars per couple down from 10.2 million per couple. This may not affect many people but anyone who has built up a large real estate portfolio may want to analyze what they have and strategize for the future. It will certainly bring a lot more of us into that tax bracket.
Tax increases:
With the Bush tax cuts expiring we will be looking at a 3% tax increase going forward. Some of us may want to accelerate income this year to avoid paying those taxes going forward. Also the social security tax will also increase by 2%.
Some Strategies to Consider:
1. Roth Conversion: With the increase in tax rates you might consider converting your IRA to a Roth. This will prevent further taxation of your principal.
2. Sale of High Dividend - Paying Stock or Mutual Funds.
3. Long Term Capital Gains Sales of Investments, Real Estate or Business.
4. Accelerate Ordinary Income, Bonuses, Annuity And Traditional IRA withdrawals, etc.
5. Gifting to family members.
6. Gifting Large Premiums for Life Insurance.
7. Large Charitable Gifts. Because of higher income tax rates for all taxpayers, charitable gifts have higher write offs.
8. Contribute as much as you can to IRAs, Roth IRAs, and 401K/403b/TSP plans.
If you would like to talk more about any of the above strategies for yourself or loved one who may need help, do not hesitate to contact me. My policy is a free one hour strategy session where I educate my clients to make educated decisions about their finances. And one of those decisions may be to do nothing. No products sold.
Roy Innella
610-695-8748
roy@yourwealthadvocate.com
website : www.yourwealthadvocate.com
