I again take this opportunity to send holiday greetings and to offer estate planning information. These days everyone is discussing the “fiscal cliff” and the apparent inability of the U.S. Congress to prevent a wholesale slew of budget cuts and tax increases that some experts say could jolt the economy into another recession. In Congressional history, very few logjams have actually created the disaster feared. Congress has almost always found a way to reach a compromise, however uninspiring, which saves us from potential economic disaster.
Some of the concern surrounds the Federal Estate Tax and its scheduled reversion to a $1 million taxable threshold on January 1, 2013, if Congress fails to act. Many estate planners believe, me included, that Congress will save us from a jarring increase in the Federal Estate Tax. Even the President’s plan recommends no less than a $3.5 million taxable threshold. His willingness to negotiate the threshold is seen in the last major estate tax legislation on December 17, 2010, when the threshold rose from $3.5 million to $5 million. The Federal estate tax simply does not produce that much revenue, having been gutted by more than thirty years of successive changes which weakened its tax bite. It is possible that Congress may wait beyond the January 1, 2013 date to enact new changes, if only so that the new Congress can boast to its constituents that they have been effective in “lowering taxes” (a boast made possible solely by their inaction in 2012). Since any Federal Estate tax return would be due only as of nine (9) months following the date of death, it is entirely possible that Congress could wait as long as until August 31, 2013 to make any final changes to this!
Apart from possible tax increases arising out of the eventual resolution of the “fiscal cliff”, taxpayers earning more than $200,000 (i.e. adjusted gross income –“MAGI”), and married couples filing jointly with more than $250,000 will be subject to the Obama Care surtax, effective as of 2013. The 3.8 percent tax applies investment income (dividends and capital gains), but only to the extent it would exceed the $200,000 ($250,000) MAGI level.
Conventional end-of-year tax wisdom has always been to offset any gains by selling investments that would produce a capital loss. This way, net gains are reduced, and capital gains taxes would be lower. Second, consider gifting investments that gone up in value to charity, including your religious congregation, if you have one. You get a deduction for the full amount of the stock, even though you have never “cashed-in” by selling the stock first.
But do the Obama Care surtax and the possibility of “fiscal cliff” tax increases turn that strategy on its head? In other words, might it be better to “save” your tax-savings strategies for use in 2013, when tax rates will be higher and there will be a surtax to contend with (if you earn over the threshold)? If you are a pessimist and “save” your strategies for 2013, you may wish you hadn’t, if Congress sets a higher rate threshold at a point lower than what you will make in 2013. I regret to say my crystal ball does not say which way the tax winds will blow.
My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My 5 Militia Drive office in Lexington is a bright, 1st floor location with plenty of free parking. Please visit my firm’s web site at http://www.georgefootepc.com; you will find useful information there, such as my “Estate Information Check List” which I recommend all clients use to inventory their investments to get a better picture of what their estate is worth. You can also contact me at firstname.lastname@example.org. This is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2012 and I wish you good health, good times, and peace in 2013.