Year End Tax Planning: Preparing for the Tax Cliff

Rarely has there been such a major difference between the laws in effect in one year and the next. The maximum income tax rates next year could be as high as 43.4% on ordinary income (44.6% if the potential impact of reinstated limitations on itemized deductions is taken into account) and 23.8% on long-term capital gains (or 25% if itemized deduction limitations are factored in). Few taxpayers are prepared for the impact of these changes. Smart practitioners will see this as an opportunity to help clients deal with a difficult situation and demonstrate how a CPA can add value. Fortunately, there are abundant planning opportunities; in particular, CPAs can help clients avoid or minimize the impact of scheduled tax increases resulting from the expiring Bush tax cuts. This article focuses on some of the more significant changes on the horizon and how practitioners can help clients deal with them.