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Year-end planning is a bigger challenge this year than in past years because, unless Congress acts, tax rates will go up, many more individuals will be snared by the alternative minimum tax (AMT), and various deductions and other tax breaks will be unavailable. As a result of expiring Bush-era tax cuts individuals will face higher tax rates next year on their income, including capital gains and dividends. With the passage of the Health Care Act there will be a .9% Medicare surtax on wages earned in excess of $250k and a 3.8% Medicare surtax on Net Investment Income where modified adjusted gross income exceeds $250k.  The AMT problem arises because the 2012 AMT exemption amount has dropped and fewer personal credits can be used to offset the AMT.

 These adverse tax consequences are by no means a certainty. Congress could extend the Bush-era tax cuts for some or all taxpayers, retroactively ?patch? the AMT for 2012 to increase exemptions and availability of credits, revive some favorable tax rules that have expired, or extend those that are slated to expire at the end of this year. Which actions Congress will take remains to be seen and may well depend on the outcome of the elections. These uncertainties make tax planning even more important than ever.  What follows is a checklist of actions that can help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them.  You should consult your tax adviser before the end of the year for the strategies which would profit you the most. 

Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year.

If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year's worth of deductible HSA contributions even if you were not eligible to make HSA contributions for the entire year.

If you are thinking of selling assets that are likely to yield large gains, try to make the sale before year-end, with due regard for market conditions. This year, long-term capital gains are taxed at a maximum rate of 15%, but the rate could be higher next year.

Lock in the 15% gain on appreciated-in-value stock by selling the stock and then repurchasing it.

Consider making contributions to Roth IRAs instead of traditional IRAs.

If you believe a Roth IRA is better than a traditional IRA, consider converting traditional IRAs to Roth IRAs this year to avoid a possible hike in tax rates next year.

Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-1/2.

Since the AGI floor for medical expenses will rise from 7.5% to 10% for those under 65, consider accelerating known medical expenses to 2012.

These are just some of the year-end steps that can be taken to save taxes.

Last Updated by Admin on 2012-11-06 03:20:57 PM