2012 Tax Breaks That You Can Use

Some ideas from Financial Planning magazine.

Roth Conversions

Converting a traditional IRA to a Roth IRA creates a taxable event in 2012. All future earnings in the account will be tax-free, as long as you wait five years and are age 59½ or older when you take withdrawals. But the single biggest advantage to doing a Roth conversion now is the ability to “undo” the transaction as late as Oct. 15, 2013.

Should the new Congress pass a major tax reform bill next year that lowers tax rates across the board, you can put the money back into your IRA.

Harvest Capital Gains

If you sell appreciated securities that you’ve held for at least 12 months you can realize the long-term gain for tax purposes.  You can immediately repurchase the same asset because there is no wash sale rule for realizing gains. This allows you to pay tax on the gain in 2012, when rates are low, and establish a new cost basis in the asset to minimize increased gains that may be taxed at higher rates.

Pay Medical Expenses

If you have high medical expenses and can shift the payment to 2012, it may be to your advantage.  Medical expenses are deductible only if they exceed 7.5% of adjusted gross income (AGI), next year the threshold jumps to 10% of AGI.


Caution: before you use any tax strategy, be sure to check it out with your tax advisor.


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