In my previous post, I talked about how some of the important tax breaks and exemptions that currently exist could be in danger as a result of the ongoing political debates in Washington about how to reform or rework big portions of the tax code. I talked about healthcare, mortgage interest, and retirement savings in my last post, so today I’ll focus on tax breaks that impact capital gains and charitable donations, as well as some important state and local tax deductions:
Capital gains and dividends are a valuable tax break for many Americans, with tax obligations of only 15% (in contrast to the 35% on other income). Because this represents a big chunk of lost income for Uncle Sam, however, they are in the crosshairs of motivated political reformers who want to alter the current tax code. If you are one of those who rely upon capital gains and dividend deductions for a portion of your income, any change to these rates would be a significant blow. While it never makes sense to go on a selling spree, those who have an asset sale lined up might want to move now before rates potentially rise in 2013.
State and local deductions
The large number of taxpayers that benefit from various state and local income-, sales- and property-tax deductions might be in for some unpleasant news in 2013, if some of the discussed changes come to fruition. For those individuals, it might make sense to move their timeframe up for certain payments and purchases, provided that doing so doesn’t subject them to the alternative minimum tax.
Charitable donation deduction
While few lawmakers are willing to publicly promote changes that might limit the ability to make charitable donations to a good cause, the possibility of changes to this category of deduction remains. One option for those looking to lock in their current deductions is to allocate “donor-advised funds”, which enable them to make sizable donations before the end of the year without having to make specific decisions about the recipients of their largesse.