The rules are changing in 2013. Start preparing today!

Tax-IncreaseWhile your 2012 taxes may be a distant memory, with refund checks spent on vacations and credit card bills, many of you will be in a very different tax situation in 2013. The 2012 Taxpayer Relief Act will offer anything but relief to many, as taxes increase and deduction opportunities diminish.

Three 2013 warning signs

Based on our work preparing 2012 tax returns for over 1,000 families and small businesses, we’ve noticed three critical trends that will need to be quickly addressed in 2013 to protect clients from future tax and retirement angst. Here is more information about each trend:

  1. Over allocation in the stock market. With recent market gains, clients have been jumping back into the stock market with a vengeance. But given each client’s age and risk profile, that might not necessarily be the best decision. As we’ve seen, the market is still prone to major fluctuations. With one piece of bad news, recent gains may be quickly erased. For a 40 year old person who has plenty of time to ride out any market adjustments, that’s no problem. However, those approaching (or in) retirement need to think about income, not investment growth. This requires a much more conservative strategy.  Those same market fluctuations may reduce retirement account balances to the point that income is also reduced. Let’s plan for the golf course, not the workforce.
  2. Retirement account replacement/growth. Unfortunately, some of our clients have experienced periods of unemployment over the last few years and needed to draw down their retirement account balances to survive. It looks like the job market is finally opening up and many are back in the full-time workforce. If you haven’t been funding an IRA, 401K, or SEP due to lower or no income, it’s time to start making regular contributions so you can catch up to your retirement goals. If you haven’t yet set those goals, we need to meet.
  3. 2013 withholding and tax adjustments. Taxes are going up and deduction opportunities will be reduced for many. Are you prepared? While salary tax withholding has already been adjusted through payroll, that withholding does not take into account additional taxes on your investments – specifically capital gains, dividends, and other investment income. After analyzing the tax implications of one client’s stock portfolio, we ended up changing the salary tax withholding amount from 22% to 28%. That’s a 27% increase! If you file estimated taxes, you will also need to take all of these potential tax implications into account.

Time for a financial health review

Remember that your CPA is a highly trained, independent financial consultant. Please give us a call to schedule a financial health review. We can analyze your current financial situation, and help you prepare for 2013 taxes today and for retirement down the road. Unlike your annual medical check-up, we won’t take any blood.

Neal Bach, CPA