Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Some people do all of their investing in an employer-sponsored retirement plan where earnings are untaxed until withdrawn, and perhaps in an IRA as well. Withdrawals are generally taxed at ordinary income rates, which now go up to 39.6%.

            Conversely, others have taxable accounts as well; each year, income tax is due on investment interest, dividends, and net capital gains in these taxable accounts. Some dividends and gains qualify for favorable rates, currently no higher than 20%. (Taxpayers who are subject to the 3.8% surtax on net investment income might actually owe 23.8%.)

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Studies indicate that savvy asset allocation may lead to long-term investment success. Individuals can find a desired mix of riskier asset classes, such as stocks, and relatively lower risk asset classes, such as bonds. Sticking with a chosen strategy might deliver acceptable returns from the volatile assets, as well as fewer fluctuations along the way from the stable assets. An asset allocation could consist of a simple blend of stocks and bonds, plus an emergency cash reserve. Alternatively, an asset allocation can include multiple asset classes, ranging from small-company domestic stocks to international mega corporations to real estate.

            Investors may put together their own asset allocation, or they might work with an investment professional. Either way, the challenge is to maintain the desired allocation through the ups and downs of the financial markets. The answer generally recommended by financial advisors is to rebalance periodically. 

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

The new provision obviously will benefit taxpayers who live in Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, none of which has state income tax. If you live in such a state and it pays for you to itemize, you can deduct sales tax you paid.

            Residents of other states who itemize their deductions must decide whether to deduct sales or income tax.

            Example 1: As the year-end nears, Tara Lane calculates how much state income tax she will wind up paying in 2016. That includes amounts withheld from her income and any estimated tax payments. Suppose the total will be $5,000. If Tara will have paid more than $5,000 in sales tax for the year, she should deduct sales tax on her federal return. Otherwise, she should take her $5,000 state income tax deduction.

            To calculate her sales tax payments, Tara can check her receipts for the year. Lacking complete records, Tara can use the Optional Sales Tax Tables, provided by the IRS in the instructions to Schedule A. Still another option is to use the IRS Sales Tax Deduction Calculator, at https://apps.irs.gov/app/stdc/, which calculates the amount of the deduction based on the tables for you.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

For 2016, the standard deduction is $6,300 for single taxpayers (and for married persons filing separately) and $12,600 for married couples filing jointly. For heads of household, the standard deduction is $9,300. People who have reached age 65 by year-end can take an additional standard deduction of $1,250, if married, or $1,550, if not married. Taxpayers who are blind also get this additional standard deduction.

Example 1: Stan and Kate Thompson are both 68 years old; they file a joint tax return. Their standard deduction for 2016 is the basic $12,600 for couples filing jointly plus $1,250 for Stan and $1,250 for Kate, for a total of $15,100. (If one of them was blind, that amount would increase by $1,250, to $16,350.)

Year-end planning will be more challenging than normal this year. Unless Congress acts, starting in 2013, individuals will see higher tax rates across the board and a number of popular deductions and credits will be gone. Estate and gift tax rates will be higher as well. Additionally, a number of popular deductions expired at the end of 2011 and won’t be available for 2012.

Deductions not available this year include, for example, the election to deduct state and local sales taxes instead of state and local income taxes and the above-the-line deductions for tuition and educator expenses. Deductions and credits that will disappear at the end of this year include generous bonus depreciation and expensing allowances for business property and the expanded tax credits for higher education and dependent care costs. Also, the phase-out rule that reduces write-offs for the most popular itemized deduction items (including home mortgage interest, state and local taxes, and charitable donations) for high income taxpayers is scheduled to come back in 2013.

Finally, as a result of the Healthcare Act, two new Medicare taxes will kick in starting in 2013. First, there will be a new 0.9% Medicare surtax tax on wages and self-employment earnings exceeding $200,000 ($250,000 if married filing jointly; $125,000 if married filing separately). There will also be a new 3.8% Medicare contribution tax that will apply to the lesser of (1) net investment income, including interest income (but not if it is tax-exempt), capital gains, and dividends; or (2) modified Adjusted Gross Income (AGI) in excess of $200,000 ($250,000 for married filing jointly; $125,000 for married filing separately).

These tax increases are by no means a certainty. Congress could extend the Bush-era tax cuts for some or all taxpayers, revive some favorable tax rules that have expired, and extend those that are slated to expire at the end of this year. Which actions Congress will take remains to seen and may well depend on the outcome of the elections.

Despite uncertainties, what we can say for sure is that the 2012 federal income tax environment is still quite favorable, but we may not be able to say that for long. Therefore, tax planning actions taken between now and year-end may be more important than ever.