The federal tax law extended today’s historically low tax rates through 2012 and created potential savings opportunities for taxpayers.
Clients may want to explore ways of capitalizing on the tax rates now before future changes occur. Higher taxes are already on the horizon, including a new 3.8% Medicare surtax on investment income that becomes effective in 2013. The tax was passed as part of the health-care reform law.
Considering income tax rates may change when the current federal tax extensions expire, clients may want to explore accelerating some income over the next two years. For example, clients may consider converting a Traditional IRA to a Roth IRA, selling appreciated assets and realizing capital gains or deferring the realization of a loss to offset future capital gains, and selling a business. In doing so, each strategy may generate additional income that would be taxed at the current rates.
While the tax law provided clarity, the provisions are extended only for two years, leaving a limited window of opportunity for these tax planning strategies.