Updated Thursday, September 3, 2015 as of 11:12 AM ET

Plan Alternative Scenarios for Next Year’s Tax Rates

For example, with long-term capital gains currently taxed at a 15 percent rate today and rising to 20 percent in January, plus a 3.8 percent Medicare tax, the taxes could go up nearly 24 percent. ďIf we knew that was certain to be the tax for all of 2013 and beyond, then that might drive someone who was otherwise going to sell their position in a stock to trigger that this year,Ē said Rosica. ďThere is a breakeven point for doing that. If you were to sell it today, recognize the gain, and perhaps purchase that same stock and then hold it, there is a point for that breakeven versus just holding onto that stock and subjecting the entire gain to 23.8 percent down the road. Those are not two-year or three-year breakevens. Theyíre more like five years on those kinds of things. And the question is: who is really comfortable with what the taxes are going to be five years out? They could be something completely different, so are you willing to pay the toll and pay the tax today for something that has a five-plus-year breakeven or do you want to just let it ride and then pay the taxes once you eventually sell that position or not? It requires some analysis in those situations to really be postured so that you can pull the trigger on the one that makes the most sense.Ē

Rosica believes that while the information on future tax rates is not yet available, the framework is available to come up with those scenarios and then be ready to make a decision. ďAt some point, when itís December 31, itís time to make the decision, right? You have to go one way or the other on this,Ē he said. ďAnd if thereís no more clarity than we have today, then you probably donít do some of those things, but if there is, then you may.Ē

Rosica advises clients not to wait until the end of the year. ďIf you wait until we get clarity, it could be the last week in December before we get some, and you then have to figure out what strategies you should implement based on that,Ē he said. ďI think itís going to be too late to get anything done. Line up some strategies based on understanding what your situation is, and the types of income you have, such as what is and is not subject to the Medicare tax, because we have that kicking in January 1. Despite what happens with other tax rates, that doesnít seem like something thatís necessarily going to change based on the administration thatís in office now. Itís a change that would require some significant negotiation. So understand the types of income that you have, whether itís wage income, self-employed income, interest or dividends, and whatís going to be subject to which tax. How much is that going to cost, and how can you plan around some of those items based on what your situation is? Just prepare yourself now to understand what actions you might take. Be ready to execute any of those strategies so if we get any more clarity, you will know which way to go, and if we donít, youíll know what to do in that situation as well.Ē

Get access to this article and thousands more...

All On Wall Street articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.

Already Registered?

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.

Already a subscriber? Log in here