Income Tax Increases

It is unclear whether these tax increases if passed, would be effective beginning next tax year, retroactive to the beginning of this year, or somewhere in between. Therefore, the time may be now to evaluate your portfolio, identify the assets with embedded gains, and determine whether it is advisable to sell before the rates increase.  This would help lock in the current lower tax rates.

While no investment decision should ever be dictated solely by taxes, a careful analysis of net after-tax return is critical in understanding the true value and cost of holding a long-term investment versus a sale in this environment. Similarly, any tax strategies that allow for a deferral of income tax should be given an extra look.  Tax-advantaged accounts, such as IRAs, 401(k)s, health savings accounts (HSAs), and 529 plans, provide enhanced benefits as the taxes on the income earned on assets in these accounts can be deferred and possibly eliminated if certain conditions are met.