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While it seems much too early to be talking about taxes, and we all have all heard just about enough of this Fiscal Cliff saga, we are approaching tax time, and with that comes the deadline for many tax planning considerations.   Whether we go (went) over the cliff or not,  tax rates and laws look to be changing for 2013.  If no legislative bargain happens,  "JGTRRA" (Jobs and Growth Tax Relief Reconciliation Act)  legislation of 2003 will finally sunset.  This means tax rates will revert back to their previous higher levels, and capital gains will rise from 15 to 20% rates.    So, we will all likely be subject to higher taxes - just what we voted for right?
So what's a person to do?  Well, the first step is to assess your situation.  Here's six things to consider:

  1. Income:  how does this year compare to last year, and what does 2013 and even 2014 look like for you?  Is 2013 income looking substantially different from last year or next year?  Will you likely be in a different tax bracket (rate)?  Can you defer income (e.g. year-end bonus) or accelerate pre-tax contributions to 401k or other retirement plan to bring down your taxable income?  Conversely can you accelerate income if 2014 is likely to be a higher income year?  Other income - will you collect rent, or  receive any pension or Social Security income(s)?
  2. Do you have any assets with capital gains that you have previously considered selling?  Do you have carry-forward losses that are going un-utilized, or maybe better save them for future?  Did you sell or purchase your home - may or may not have significant tax consequences.
  3. Filing Status:  have you had a change in your filing status:  this could be either a new child, or marriage, divorce or death in family.
  4. Are your deductions significantly greater than previous year?  While this may seem like a good thing for taxes, yet it may trigger Alternative Minimum Tax (AMT)?
  5. Are you eligible to contribute to a Traditional or ROTH IRA or convert an IRA to a ROTH IRA?  While contributions can occur up through April 15 (tax filing deadline), conversions must occur within the calendar year (by December 31st).
  6. Are you (or loved one) retiring soon?  Planning to collect Social Security or pension plan?  Are you close to or turning 70 years old this year - you may need to withdraw retirement assets.

This is by no means intended to be a comprehensive or complete list.  Rather, just some things to get you thinking about your situation and to encourage proactively addressing (the next step) rather than simply sitting back and waiting for your tax bill to arrive in April.  Even if you traditionally get a refund, this does not exclude you from the opportunity to lower your tax bill (get an even bigger refund).  But like all things, it takes a bit of work.  I would encourage you to seek out professional tax advice to determine if your situation can benefit by some tax planning.

The views expressed are not the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly as an offer to buy or sell securities.  Individual circumstances vary.  Investing is subject to risks including loss of principal.  No strategy can assure a profit.  Royal Alliance does not provide tax advice.  This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice and it is suggested that you consult a qualified tax professional.

Pete Thoresen
Financial Advisor
Focus Financial Network, Inc.
1000 Shelard Parkway, Suite 300
Minneapolis, MN 55426
952-225-0344 direct | 952-591-9770 main office

Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Insurance and investment advisory services offered through Focus Financial Network, Inc., a registered investment advisor not affiliated with Royal Alliance Associates, Inc.

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