In our current tax environment, “wait and see” planning will most likely end in a “wait and pay more” scenario. Furthermore, estate planners are not likely to know more about what will happen when the current tax code expires at the end of this year than they did 2 years ago. A last-minute deal in a post-election lame duck session of Congress, similar to the one in 2010, is highly unlikely. Here are a few things to keep in mind.
- In 2013 the estate and gift tax exemptions will drop from $5 million per taxpayer in 2012 to $1 million in 2013. People with estates above $3 million should consider making gifts in 2012 in order to reduce future estate taxes when the exemption is lower and the tax rate is higher. Although Congress may increase the exemptions in 2013, there is no assurance that will happen and if it does happen what the exemptions will be.
- The federal dividend rate of 15% will expire at year-end. Anyone holding significant cash in a C-Corporation should consider taking a dividend of the cash out before year-end. If needed, the funds could be loaned back to the C-Corporation.
- The federal capital gain rate increases from 15% to 20% in 2013. If you are anticipating an imminent capital gain transaction, consider completing the transaction before year-end. If a transaction in 2012 has any deferred payments, consider assuming the entire tax burden in 2012, rather than opting to pay taxes as the funds are received.
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