Berkeley-based Financial Advisor Offers Concrete Strategies To Minimize Negative Impact from Pending Loss of Tax Incentives.
BERKELEY, Calif – April 14, 2012 — Jonathan K. DeYoe of DeYoe Wealth Management cautions that planning ahead to address 2012 taxes is just as important as filing 2011 return by April 17. DeYoe is advising his firm’s clients to begin preparing immediately for the end of the Bush Tax Cuts.
Bush signed a number of tax cuts into law in 2001 & 2003 that were extended after a very contentious debate on the congressional floor in 2010. Once they complete their 2011 taxes, DeYoe recommends to his clients that they immediately begin their tax planning for 2012 and beyond, a time without the Bush-era tax incentives.
“Once someone receives a benefit, it is very hard to take it away,” said DeYoe. “Unfortunately, given the state of our federal budgets, I think it’s highly unlikely we’ll see a continuation of the Bush tax cuts after the end of this year. Spending must come down and tax rates must go up.”
DeYoe recommends that his clients discuss the following strategies with their financial advisor or accountant:
1. No one knows for sure where income tax rates are going, but unless Congress acts with new legislation, both income & investment taxes will increase in 2013. To ease into these tax increases, the first thing taxpayers can do is to accelerate income into 2012. For example, if they are expecting a year-end bonus from their employer, ask to be paid no later than December 31, 2012. If they are a small business owner, taking more income in 2012 and less in 2013. At the same time, defer as many deductions as possible into 2013. If a business can wait to purchase that new equipment or remodel an office until next year, it might be a good idea to do so.
2. To make sure taxpayers are not caught short of cash come tax time next year, review federal and state withholding exemptions now. Should tax rates spike, it will probably be a lot easier to pay a little bit of that tax every month this year rather than having to come up with a large lump sum at tax time in 2013.
3. Once the Bush tax cuts expire, taxpayers can expect that taxes will consume a larger share of all future investment returns. However, investors probably won’t see an even increase across the board. For example, taxes on capital gains could go from 15 percent to 20 percent (a 33 percent increase) while taxes on qualified dividends might go from 15 percent to 40 percent (a 164 percent increase). Since the tax changes will affect total return based on the type of assets held, this is definitely worth discussing with a financial planner or investment advisor. Everyone should review their asset allocation together and reduce the “expected” returns built into their financial plan.
4. If investors have large gains in their current portfolios or have company stock options they’ve been waiting to exercise, 2012 might be a better year to recognize those gains rather than giving up more of those gains to taxes in 2013.
5. Finally, the estate and gift tax exemption is slated to drop from $5 million to $1 million in 2013. This estate and gift tax exemption may be the single best tax management opportunity for large estates in the tax code today. Anyone with a large estate should talk to a CPA, attorney and financial advisor about taking advantage of the gifting portion of this benefit before it disappears.
“The clock is ticking,” said DeYoe. “Our recent history tells us that Congress, especially one as divided and contentious as this one, is unpredictable. We can wish that they come together, but a wish is not a plan. We must consider and act upon the reality of coming tax increases at all levels of income.”
About DeYoe Wealth Management
Based in Berkeley, California, DeYoe Wealth Management is passionate about helping clients pursue financial independence on their terms. The firm offers access to comprehensive financial services, including customized asset management, holistic financial planning, and insurance solutions tailed to meet the needs of our clients and their families. Our objective is to help our clients maximize their Happiness Dividend, working towards financial independence while realizing their dreams. DeYoe Wealth Management uses a six-step process to make sure our clients’ investment strategies keep pace with their changing lifestyle, planning for current needs and future goals. For more information, visit http://www.deyoewealthmanagement.com.
Jonathan K. DeYoe is not a CPA. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations to any individual.
Jonathan K. DeYoe, AIF® & CPWA® is a registered principal with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor – Member FINRA/SIPC.
Nancy Wright Cooper
DeYoe Wealth Management
(510) 848-0012, ext. 103
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