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10 questions to consider now for tax changes

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William Hertzog

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Posted: Tuesday, April 3, 2012 10:06 am

Many significant provisions of the landmark Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) are scheduled to “sunset” (expire) at the end of 2012, which would result in significant tax law changes. If it feels as though we’ve been here before, that’s because we have; the same thing was scheduled to occur at the end of 2010, but Congress voted to extend most of the effected provisions. Will it extend them again? Who knows? That’s why you may want to consider taking steps between now and year-end that could dramatically improve your financial picture — regardless of what Congress does.

Significant changes ahead

December 2011’s last-minute legislation extending the payroll tax cut for only two months instead of the entire year was likely a preview of what taxpayers can expect between now and year-end. Depending on what, if any, tax legislation Congress is able to enact in this contentious environment, we could experience a tax increase for 2013 and later years, as shown in the tables on the right.

Ten questions to discuss with your financial advisor

The expiration of many of EGTRRA’s major provisions could have the biggest effect on taxpayers since the enactment of EGTRRA itself. Fortunately, there’s time to take action so you can be prepared in case the “sunset” actually occurs. To start your discussion, here are 10 questions for you and your financial advisor to address:

1. When should you realize long-term gains?

2. Should you “harvest” capital losses this year?

3. Should you reallocate your portfolio?

• Move from income stocks to growth stocks?

• Purchase tax-exempt bonds?

4. Should you convert your traditional IRA to a Roth IRA?

5. When should you receive income?

• Take traditional IRA and annuity distributions?

• Receive or defer bonus, severance or retirement payments?

• Redeem U.S. Savings Bonds?

6. Are charitable contributions more valuable in 2012 or later years?

7. Should you delay state and local tax payments?

8. When should you take nonqualified 529 plan and Education Savings Account distributions?

9. When should you exercise employer-granted stock options?

10. How should you manage tax-deductible business expenses?

William J. Hertzog, CIMA, is first vice president of investments for Wells Fargo Advisors, LLC, in Ahwatukee. Reach him at (602) 952-5133 or www.TheHertzogGroup.com. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. Note: Investment and insurance products are not FDIC insured, not bank guaranteed and may lose value.

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