It may only be August but it is time to start planning for the 2012 tax season. As congress seems to be passing more significant changes to tax later and later it is crucial to be ahead of the game. It is no longer possible to know exactly what the tax law is going to be so here are some things to know for your tax clients as you meet with them this summer and fall.
The 800 pound gorilla hanging over everyone's head are the Bush era tax cuts. The Republicans want to extend them and the Democrats would like to limit that to only some tax brackets. In this election year whatever gets done won't happen until November. But it would be a mistake to assume that they will be extended with no changes. The dynamics in Washington are different this year than they were last year.
There is currently a $5 million give exemption but it is scheduled to revert to $1 million next year. If clients are thinking about making a give they should do so this year if possible to avoid the gift tax on the last $4 million.
Obama has proposed changes to the treatment of grantor trusts. This would increase taxes on trust distributions. It may be advantageous to accelerate them so they are taken in 2012.
With the possible increase in tax rates it may make sense to increase net income this year. This can be done by accelerating income into 2012 but also deferring some expenses to 2013. The net result is a higher income in 2012. It makes sense to be ready to do this based on how the legislation progresses. Have your plan in place so you can just pull the trigger if it makes sense for the client.
Look at how the client is investing in qualified accounts like 401Ks. It may make sense to alter that allocation for 2013. If the client is not looking at how the asset allocation is in their portfolio this is also something for them to consider. While beyond the scope of many CPAs, the total financial health of your clients is always important.
So as the boy scouts always say, "be prepared." This may be a winter of significant tax changes that require significant changes or it may also be that the tax cuts are extended and then it is more of the same for 2013.
The 800 pound gorilla hanging over everyone's head are the Bush era tax cuts. The Republicans want to extend them and the Democrats would like to limit that to only some tax brackets. In this election year whatever gets done won't happen until November. But it would be a mistake to assume that they will be extended with no changes. The dynamics in Washington are different this year than they were last year.
There is currently a $5 million give exemption but it is scheduled to revert to $1 million next year. If clients are thinking about making a give they should do so this year if possible to avoid the gift tax on the last $4 million.
Obama has proposed changes to the treatment of grantor trusts. This would increase taxes on trust distributions. It may be advantageous to accelerate them so they are taken in 2012.
With the possible increase in tax rates it may make sense to increase net income this year. This can be done by accelerating income into 2012 but also deferring some expenses to 2013. The net result is a higher income in 2012. It makes sense to be ready to do this based on how the legislation progresses. Have your plan in place so you can just pull the trigger if it makes sense for the client.
Look at how the client is investing in qualified accounts like 401Ks. It may make sense to alter that allocation for 2013. If the client is not looking at how the asset allocation is in their portfolio this is also something for them to consider. While beyond the scope of many CPAs, the total financial health of your clients is always important.
So as the boy scouts always say, "be prepared." This may be a winter of significant tax changes that require significant changes or it may also be that the tax cuts are extended and then it is more of the same for 2013.
Labels: bush tax cuts, tax planning
