Tax Tips for the Next Two Months

Some good advice on taxes from the Wall Street Journal.

As we head into 2013 the tax future is very, very uncertain.   Unless Congress and the President act, lots of taxes are going up – for everybody.  So what should you do?

Depending on what, if any, tax-law changes are enacted after the election, some traditional year-end tax-saving techniques might not work this year—and could even backfire. For example, long-cherished maneuvers that could help many taxpayers—such as accelerating deductions and postponing income—might not be a smart idea for large numbers of people. In some cases, the reverse strategy might be better….

Despite these major question marks, many Americans may benefit from a few ideas, including what not to do. Here are a few from tax advisers:

1. Consider tax-loss harvesting.

Do you own stocks or other securities that you once loved but now hate and are worth less than your cost? If so, and if you were thinking of dumping those losers soon, this could be a good time to sell. Those capital losses can be valuable.

2. Don’t get soaked by the wash-sale rules.

See our previous post on the Wash Sale Rule.

3. Consider donating highly appreciated stock to charity, instead of selling and donating the proceeds.

This one needs no explanation.

4. Mutual-fund investors: Beware of a painful year-end tax trap.

If you buy a fund in a taxable account late in the year, you may end up paying taxes on gains the fund made before you owned it.  In fact, you may pay taxes even if you lost money. 

5. Consider bunching deductions.

Think about combining charitable donations and other deductions into a year when they will be worth the most for you.

6. Consider cashing in long-term winners.

Some upper-income investors might benefit by selling big investment winners before Dec. 31 to take advantage of this year’s unusually low capital-gains tax rates. The top capital-gains rate this year is 15{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} on stocks, bonds and other securities held more than one year. If Congress does nothing, the top tax rate on long-term capital gains next year will rise to 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}. Also, millions of upper-income investors will face a new 3.8{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} additional tax on investment income, which is set to arrive next year under the health-care law.

7. Punt.

For many perplexed taxpayers, the most prudent course will be to delay action until the tax-law outlook is much clearer.  Deciding to do nothing is sometimes the best strategy.


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