“There’s nothing for folks to plan around right now,” said Will Rogers, a financial adviser with Ameriprise Financial Services Inc. in Evans. “That makes it horribly, horribly difficult for businesses and individuals to do year-end tax planning, because there’s a great deal of uncertainty.”
Congress remains at a standstill in talks to avoid the “fiscal cliff,” a series of federal tax increases and spending cuts that will go into effect by Jan. 1 unless action is taken.
Despite the widespread uncertainties, Rogers said converting traditional IRAs to Roth IRAs before the end of the year makes sense for a lot of people.
“If Congress changes the rules before Oct. 15 of next year where it doesn’t make sense, you can undo or re-characterize that Roth conversion,” he said. “If it makes sense to do it, you’ve got to go ahead and do it before year end.”
Rogers also advises that people sell capital-gain items they’ll be recognizing in the next few years before Jan. 1 at a lower tax rate than what currently would be allowed in 2013.
In regard to charitable donations, Rogers said taxpayers also can receive a break by donating an appreciated mutual fund or stock – instead of cash – to charities.
“That way the taxpayer does not pay tax on those gains, but they get a full deduction for the value of that mutual fund or stock that they gave to a charity,” he said.
Because most people have unique financial situations, however, Rogers emphasized that they consult first with a personal tax adviser.
Cooper & Co. CPAs President Jaimie Cooper said people wanting elective medical procedures, such as braces or laser eye surgery, should do so before 2013.
Such medical expenses now become deductible after they pass 7.5 percent of someone’s adjusted gross income level. Under next year’s law, though, the AGI threshold will raise from 7.5 to 10 percent, with the exception of senior citizens, Cooper said.
Cooper also stressed the importance of keeping receipts, both for charitable contributions greater than $250 and for tax-deductible expenses.
“In the last two years, the IRS has hired a number of additional agents to do audits,” said Cooper, who has 46 years experience. “The emphasis I have seen on audits, here with clients, has been on documentation.
“Because of the electronic age, people tend to think that when you have a bank statement or when you have a credit card statement, that is all you need.”
With the fiscal cliff still looming, both Rogers and Cooper said they’ve fielded calls from concerned clients.
Rogers passed along the following advice: People needing money from investments within the next year or two should keep it in a safe spot.
“It might be cash,” he said. “It might be municipal bonds. It might be CDs, but whatever money that you’re going to need in the next two years, don’t have it in stocks or junk bonds or real estate or stuff that can go up and down and all over the place.”