Ben Franklin definitely had it right when he said that nothing is certain except death and taxes. And you can be sure that as we get closer to the end of the year, we’ll hear lots of discussions on tax planning.
Usually, we read about potential tax legislation along with warnings to avoid making any major financial decisions until the ink is dry. But is this time different? As Laura Saunders stated succinctly in a recent Wall Street Journal article, “tax increases are coming.”
Exactly when that will happen—and specifically for whom—is not yet so clear. Discussions are popping up around shifting strategies to reap gains and recognize income now, rather than defer into a year when tax rates may be higher. This is particularly a consideration if you have capital losses (who doesn’t?) to offset long-term capital gains. And if you’ve been making large pre-tax contributions to a 401(k) or IRA, you may want to consider whether the income deferral is going to end up costing you in the future.
One of the basic tenets of tax planning is to defer gains as long as possible. This keeps you from paying taxes now and might open up opportunities should the tax picture change down the road. For some of us, however, the picture is shifting again, and we might be better off with a strategy of recognition rather than deferral.
Who knows? Your tax professional, we hope.
Are you making any moves in light of the looming rate increases for some taxpayers?
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