Tax Planning Opportunities
By Robin Jackson, Partner Terry Lockridge & Dunn, Linn County LIVING WELL Magazine
The end of 2012 will soon be upon us. And with the year drawing to a close, now is an ideal time to review your tax situation and evaluate tax savings strategies that may help you minimize your 2012 tax bill. Here are a few planning suggestions to help get you started.
Annual tax free gifting
For 2012 you can gift up to $13,000 per person tax free, with no tax consequences for you or the recipient. If you are a taxpayer with estate tax issues, annual tax-free gifts are a simple solution to getting money out of your taxable estate.
Contribute to College Savings Iowa 529 Plan
If you would like to contribute to your son, daughter or grandchild’s college education, setting up an Iowa 529 Plan is an excellent tool. The maximum tax-deductible contribution to an Iowa 529 Plan for 2012 is $2,975 per beneficiary, deductible on your Iowa tax return. These contributions can be used for the cost of tuition, room and board, and books and supplies. The account beneficiary can even be changed to a different family member in the event the child decides to skip college or doesn’t use up all of the funds.
Take advantage of the 15% capital gain rate
The maximum capital gain rate on assets you have owned longer than a year is currently 15%. We believe capital gain rates will only increase in future years, and possibly as early as 2013. So, if you expect rates to rise, it may make sense to harvest gains before year-end. Because wash sale rules do not apply to gains, you can repurchase a similar investment immediately. This tactic may allow you to “reset” your basis for a future sale while benefiting from current low rates.
Harvesting investment losses
Capital losses are netted against capital gains. Up to $3,000 of excess capital losses is deductible against ordinary income each year. If you are holding stocks in your portfolio that you do not believe will bounce back to their original purchase price, it might be to your advantage to sell them before year-end to deduct the loss in 2012. But keep in mind that capital losses are more valuable when tax rates are high, so you may want to postpone taking losses until 2013 if you think rates will be higher next year.
These are just a few of the tax saving opportunities to consider. Each individual situation varies, so it is advisable to visit with a competent tax accountant or experienced financial advisor.
The advisors at Terry Lockridge & Dunn and World Trend Financial specialize in assisting all of our clients with sound tax and financial advice. Reach them at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.