“Fiscal Cliff” Throws Wrench Into Tax Planning

The debate in Washington, D.C. over how to resolve the nation’s debt, tax, and spending issues has been dominating headlines since the November 6 election – it’s also dramatically changing tax planning.

Routine advice such as planning ahead on your tax strategy for the coming year has been turned on its head in some cases as accountants and their clients face the prospect of higher tax rates and a different fiscal landscape next year.

Normally, businesses can devise a plan for the new year fairly easily, but this is not a normal year, says Robert Ritz, a tax partner in the Rome and Utica offices of D’Arcangelo & Co., LLP.

The nation is currently set for a series of automatic tax increases and spending cuts in 2013 that economists agree would stifle economic growth.

Unless lawmakers act, it’s a reality that will come to pass thanks to earlier action in Congress.

Businesses with cash on hand may want to consider declaring dividends to ensure the current 15 percent tax rate, D’Arcangelo’s Ritz says. Other options might include declaring capital gains this year in order to ensure the current 15 percent rate or pushing the declaration of any installment sales in their entirety to this year, rather than declare them over the life of the installment, again to capitalize on the current tax rates, Ritz says.

One new tax hike hits next year regardless of what happens in the fiscal-cliff talks. The health-care reform act includes a 3.8 percent rise in the tax rate affecting unearned income like capital gains, interest, and dividends for individuals with an adjusted gross income of $200,000 or more or married couples with an adjusted gross income of $250,000 or more.

Amid all the tumult caused by the fiscal-cliff impasse, it’s crucial that businesses meet with their tax adviser to discuss all the options and perhaps create several plans to accommodate for all the possibilities, Ritz says.

D’Arcangelo & Co., LLP (www.darcangelo.com) is a certified public accounting firm with offices in Utica, Rome, Syracuse, Oneida, Poughkeepsie, Millbrook, and Westchester. The firm employs about 150 people and offers accounting, auditing, and tax services. Contact Ritz for more information at 315-336-9220 or at rrtiz@darcangelo-cny.com.

*Article published in The Mohawk Valley Business Journal; written by Kevin Tampone and Traci Delore

Robert Ritz, CPA, CVA