Five Things to Consider Now

The end of the year approaches, and pretty soon we’ll all be busy with entertaining, shopping, and other holiday pursuits. So now’s the time to think about things that you might want to set in motion to provide a little fiscal relief for the rest of 2012 and 2013.

1. Look at your income for 2012. Is this a slow year? If so, think about things that you might have been putting off or avoiding because of their negative tax consequences. If your income is low this year, or you have a lot of deductions, maybe now is the time to take the tax hit from converting some IRA funds to Roth-IRA status, or withdrawing them entirely (if  you would be needing those funds in the near future anyway). If your income is looking low for 2012, consider shifting some deductions into 2013, by putting off expenditures until after the first of the year. Conversely, if it’s looking high for the year, think about additional deductions you might be able to squeeze into 2012, by purchasing items or pre-paying for rent or services in November or December.

2. Consider using the huge estate and gift unified tax exemption that is going to expire at the end of this year. If your estate is over $5 million, or likely to be that large when you die, then now is the time to shift some of those funds out of your estate to your children or other beneficiaries. You don’t have to give them a big check – you can place the funds into irrevocable trusts, that will protect the assets and allow them to be prudently managed, with not only their current value but all future appreciation out of your estate permanently.

3. Update your estate plan, if it hasn’t been done lately. With the extreme uncertainty over what the estate and gift tax laws will look like for 2013, you want to be sure that your planning is flexible enough to adapt to changing laws and rules, and still provide the best results for you and your family.

4. Plan to have a ‘heart-to-heart’ with your family. Why not take time over the holidays, when everyone is together and in a relaxed frame of mind, to discuss your estate planning with family members? It can be a difficult subject to broach, but a pleasant family gathering can be the perfect time to spend a little time explaining to your children the steps you’ve taken to ensure that things go smoothly if something should happen to you. Everyone’s catching up, so make sure they’re caught up on this aspect of your life too. (One way to bring up the subject is to tell your adult children that you’ve made plans for them, and ask if they’ve done the same for their families. Children can use this approach with their parents as well.)

5. Read up on the new 3.8% ‘surtax’ on certain kinds of investment income, and determine the effect it will have on your overall tax bill. Consider whether shifting some of your assets to a different investment vehicle, or converting some assets to a Roth IRA, might eliminate or reduce the ‘bite’ of that extra tax. Here’s one article that provides some ideas, to get you started.