Three Simple 2012 Year-End Tax Planning Strategies

Three Simple 2012 Year-End Tax Planning Strategies

 By: John B. Even

December 20, 2012

            In the last few weeks, several clients have asked me if there are any year-end tax planning strategies that they can still complete in 2012, and the answer is “YES”.  Although many strategies are impossible to get done in 2012 at this point in the year, there are a few simple strategies that you and your family can still do in 2012.  In this article, I will discuss three of these strategies.

First, you can still do annual exclusion gifts, and no appraisal is needed if you use cash gifts.  Under current law, each donor can give to as many donees as they would like up to $13,000 per year without any tax consequences.  Thus, with gift-splitting, a married couple could give $26,000 to each one of their children and grandchildren in 2012, tax-free.  One additional idea for minor children or grandchildren is to use your annual exclusion gift to make gifts into a Section 529 plan for a child’s or grandchild’s education.  This is simple and does not require any legal documents to be drafted.  Finally, annual exclusion gifts are not counted towards your lifetime gift tax exemption amount and are essentially “off the IRS radar” from a tax point of view.

Second, as most of you know, income taxes will be increasing on January 1, 2013.  For 2012, income tax rates range from 10% to 35%.  However, unless Congress acts, the 10% rate will disappear and the maximum rate will increase to 39.6%.  Thus, everyone’s income taxes will go up in 2013.  One year-end planning strategy is to push income into 2012 to the extent that it is possible in order to pay less tax on your income.

Third, not only are income taxes increasing in 2013, but capital gains taxes are increasing as well.  In 2012, the maximum capital gains rate is 15%; however, unless Congress acts, the maximum capital gains rate will increase to 20% in 2013.  As a result, depending on your situation, some advisors have recommended moving capital gains activity up into 2012 by selling investments in 2012, incurring the capital gains tax at the lower 2012 rates, and then repurchasing them to establish a higher cost basis.


            As always, I recommend talking with your CPA and/or other advisors before implementing these year-end tax strategies as each person’s situation is different.  However, all three of these strategies are relatively simple to execute, do not require much of your advisor’s time, and can be completed in 2012 before taxes increase.

Of course, if you or any of your family, friends, or referrals has any questions, please feel free to call me at 602.277.7000 or e-mail me.


            Remember that there are some incredible tax credits available to Arizona residents that allow you to redirect your Arizona tax dollars, including the following:

1)             Private School Tax Credit (up to $503 – single/ $1,006 – married);

2)             Public School Tax Credit (up to $200 – single/ $400 – married); and

3)             Working Poor Tax Credit (up to $200 – single/$400 – married).

In addition, if these payments are made in 2012, you can not only get the Arizona tax credit, but your donation will also be tax-deductible on your state and federal returns.  One of my favorite charities is the St. Vincent de Paul Society because of all of the great work that they do here in our community.  With this tax credit, my wife and I can redirect up to $400 to this great organization to help the poor in our community.

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