As the third quarter of 2011 comes to a close, it’s not too early to think about year-end tax planning. Both individuals and businesses can take actions to reduce their taxes. As always, any action must make economic sense as well as fulfill tax planning requirements.
This year is different from 2010 in some respects. At this time last year, it appeared that individual tax rates might increase in 2011 because of the timetable then in place for the sunset of the Bush-era tax cuts. The long-term tax situation remains in flux after 2012, but thanks to the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act), there is some certainty for the next 15 months. The picture after 2012 is unclear, with President Obama proposing to let tax rates increase for the two highest income groups, and the Republicans continuing to oppose the administration.
The Bush-era tax cuts remain in effect through the end of 2012, so there is no difference in the rates that generally apply in 2011 and 2012. Thus, there is no advantage (other than the time value of money or keeping within a constant tax bracket) to moving income and deductions between 2011 and 2012. Individual tax rates are not scheduled to rise until 2013, if at all. The 15 percent maximum rate for net long-term capital gains and qualified dividend income also will not rise until 2013. However, there is always last-minute year-end planning that involves shifting income to a later year, by accelerating deductions and deferring income.
Contact your HLB Gross Collins, P.C. tax professional to discuss your tax planning strategy.