If current law is allowed to continue into 2013 unchanged,  most taxpayers will face higher tax rates on investment income like interest and dividends, and if the Bush-Era tax cuts are allowed to expire, many will pay higher taxes on ordinary income like salaries and business profits as well.  The question for many is how to avoid paying these higher rates to the extent possible.  Below are a few tips.

• If you are considering selling a capital asset next year, like a rental property or appreciated stock, consider selling it at the end of 2011 instead to lock in the lower tax rates.
• If you are considering converting a traditional IRA to a Roth, do it this year to take advantage of the lower rates.  Also, when you take money out of the Roth account, it won’t reflect in your income when determining if you are subject to the 3.8% Medicare surtax on investment income, so you might avoid paying it altogether. Distributions from traditional IRA’s will be.
• To the extent you can, accelerate income into 2012 to avoid the possibility of paying a higher rate on it come 2013.

The picture is clear: either rates will stay the same or go up; there aren’t many that believe taxes will decrease next year.  As always, we’re here to help navigate the process.