While there has been no action yet on the fiscal cliff, high-income earners are wise to prepare for higher taxes, fewer or capped deductions, or all of the above. The window of opportunity to take advantage of tax strategies while tax rates remain historically low is narrowing, so now is the time to contact clients and discuss the following tax-saving strategies:

1. Offset the alternative minimum tax
Without a legislative “patch,” the AMT will expand to affect roughly one third of all taxpayers filing 2012 income taxes. There are several strategies that may help clients avoid or minimize the impact of AMT including deferring certain tax deductions or avoiding exposure to private activity bonds.

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2. Review the benefits of tax diversification
Consider grouping investments into three categories: taxable, tax deferred, and tax free. Clients may find that their assets are “overweight” in one area and may decide to adjust their allocations by investing in municipal bonds or converting to a Roth IRA. Learn more about tax-smart planning strategies by clicking here. For further reference, 2012 tax rates, schedules, and contribution limits charts are available here.

3. Address changes in estate tax rules
The end of the year provides an opportunity to review existing estate plans and consider gifting strategies. Some clients may wish to consult with an attorney to set up more sophisticated gifting strategies such as Family Limited Partnerships.

4. Explore setting up an individual 401(k)
Clients who are sole proprietors may benefit from establishing and funding an individual 401(k) before the end of the year to receive a tax break. Clients may maximize their tax-deductible contributions up to $50,000 for 2012 or $55,500 if they are age 50 or older.

5. Consider 529 gifting opportunities
Grandparents in particular may be interested in making a gift using a 529 college savings plan. The annual gifting limit for 2012 is $13,000. There is also a special exclusion for 529 plans that allows five years’ worth of gifts — up to $65,000 for individuals or $130,000 for married couples — to be contributed at once (provided that no other gifts are made within the next five-year period). Learn more about helping a grandchild with college costs.