4 Ideas for Tax Planning – 2012

With the 2011 tax season now in the rear view mirror for most of us, we suggest that we can turn our attention to something more meaningful, such as ensuring that we take advantage of tax planning opportunities in 2012. But how can we make meaningful planning decisions this year when we are not sure what will happen with tax rates in 2013?

As it stands now, the Bush tax cuts of 2003 will expire at the end of 2012, meaning higher income, capital gains and estate tax rates for virtually all taxpayers. However, there is a possibility (note that I did not say probability) that Congress and the Oval Office will be unable to reach any kind of meaningful compromise, and the current rates will be extended in 2013.

Despite this uncertainty, there are still opportunities for taxpayers to ensure they are taking advantage of all relevant tax planning strategies this year.  Here are some ideas to consider:

1.  Max out your retirement plan — the annual limit for 401(k) contributions increased to $17,000 in 2012, although the catch-up provision — for employees 50 and over — remains at $5,500. Remember that these contributions reduce your taxable income.

2.  Contribute earlier in the year — According to study by Charity Navigator, 41% of annual contributions occur in the last few weeks of the year. Making charitable gifts earlier in the year can not only help the charity, but will help you avoid having to remember to make your gifts prior to year end.

3.  Fine tune your withholdings — Once your 2011 tax returns are completed, determine whether your Federal and State withholding amounts should be changed to avoid either a large refund or a balance due. Having too much money withheld is basically an interest-free loan to theIRS, while having too little withheld can subject you to underpayment penalties and interest. Check with your advisor or tax professional for guidance in this area.

4.  Capitalize on low rates — Now that interest rates are at all-time lows, you should explore whether refinancing your mortgage makes sense.   If you are disciplined enough to save the additional savings, lock-in the money for 30 years and invest the additional savings monthly into a diversified portfolio.  This saved money will give you more options in the future if it’s in your hands rather than the bank’s.

Finally, be proactive in understanding your options. Now that the April tax season is over, it is a good idea to have a conversation with your various advisors (financial, tax and estate planning) to see whether there are additional strategies that make sense to implement, given your unique situation.


The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

About Maureen Crimmins

Maureen Crimmins is co-founder of Crimmins Wealth Management and a fee-only independent financial advisor. Have a financial question? ASK MAUREEN


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