Not many tax changes are planned in the Internal Revenue Service rule books for 2012. Tax agencies and tax litigation specialists recommend using the year to get tax plans ready for potential big changes that may occur for 2013.
High-asset and some middle-income taxpayers will feel a pinch if Congress fails to renew some expiring tax deductions. Those renewals, also known as “patches,” will apply to 70 deductions if Congress chooses to deal with them.
The precariousness of when or whether lawmakers will renew a deduction makes long-term tax planning more challenging for tax planners and attorneys. Being aware of the possibilities of change eases uncertainty.
After the 2011 tax year, Congress is likely to consider whether taxpayers may continue to have a choice between deducting state sales and incomes taxes from federal ones. For people in states without an income tax, like Texas, a congressional renewal becomes even more desirable.
Older taxpayers are watching for any IRS changes to charitable donations from retirement accounts. Current law allows individuals older than 70.5 years to make a direct donation of up to $100,000 from a retirement account to charity without federal tax interference. Renewed taxation of that amount could make charity donations less likely.
Provisions expected in 2012 affect capital gains on exchange-traded funds and mutual funds. Brokers next year must report purchase prices on these investments to the IRS, similar to reporting methods used for stock purchases that started this year.
By the end of 2012, lower tax rates enacted in 2001 and 2003 disappear unless Congress and the president agree to preserve them. Without an agreement to keep the provisions intact, federal income and estate taxes may increase noticeably.
Until Congress decides to act – or not act – some advanced planning is definitely needed so one is not shocked by a higher tax bill that can’t be afforded.
Source: New York Times, “Plan ahead for taxing changes,” Paul Sullivan, Dec. 11, 2011
