Magazine article Medical Economics

Develop a Contingency Plan

Magazine article Medical Economics

Develop a Contingency Plan

Article excerpt

It might be wise to have two financial plans ready, depending on what direction taxes go in 2013 - one plan to accelerate taxable income, and another to defer income. Here are some suggestions, but consult your financial adviser before making a decision that affects your investment strategy.

* Reconsider any investments that pay dividends or interest Investment considerations always should take precedence over tax considerations. Whether you hold these investments in a taxable account or a tax-deferred account will depend on the tax code. Currently, it is better to hold stocks paying qualified dividends in a taxable account because they are taxed at a maximum rate of 15%. The repeal of the Jobs and Growth Tax Relief Reconciliation Act of 2003 and the start of the 3.8% surtax on investment income under the Affordable Care Act would make a tax-deferred account the better choice.

* Consider accelerating income. Doing so will increase your tax bill for 2012, but it could be worth it to avoid a potentially higher rate in 2013.

* Sell appreciated stock that you have owned for 12 months or more, then repurchase the stock to establish a new cost basis. For most taxpayers, the "wash rules" do not apply to recognition of gain. You will have to pay taxes on the gain in 2012, but the long-term capital gains rate is 15%. Long-term capital gain rates are scheduled to go up to 20% in 2013 and be subject to a new surtax.

* Convert IRAs to Roth IRAs. The $100,000 cap on adjusted gross income was lifted in 2010. …

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