WHAT TO DO?

Becauseof the procrastination of the idiots in Congress it is very difficult to knowwhat to do tax-wise for 2012.
Asof this writing, both the House and the Senate have passed some form of extenderbill –
·     TheHouse bill extends the “Bush” tax cuts in full for one more year.  It provides an AMT patch for 2012 and 2013,but does not address other expired “extenders” tax benefits.
·     TheSenate bill extends the “Bush” tax cuts for all taxpayers with incomes below acertain threshold, which is "marriedcouples with taxable income under $250,000 less the standard deduction and twopersonal exemptions; single taxpayers with taxable income under $200,000 lessthe standard deduction and one exemption; and heads of household with taxableincome under $225,000 less the standard deduction and one exemption”.  The thresholds would be indexed for inflationafter 2009.  It also provides an AMTpatch for 2012 only and a one year extension of most of the popular “extenders”tax benefits.
What theidiots in Congress should do isextend everything that was in effect on December 31, 2011 (including thoseitems already extended through December 31, 2012), except perhaps the 2%reduction in employee Social Security withholding, through December 31, 2013,including the indexed AMT patch and the rest of the temporary “extenders”, ASAP.
What I expectwill happen is that they will waituntil after the election to do anything about anything – and extend everything,at least for taxpayers under the suggested Senate income thresholds, and exceptperhaps the 2% reduction in employee Social Security, in December. 
In eithercase what the idiots must then do in2013 is seriously address radical tax reform.
So formost taxpayers, and 90% of my 1040 clients, tax law for 2012 and 2013 will bethe same as 2011.
Butnothing is certain, and it may be a good idea to approach/consider financialtransactions under the “worst case scenario” - nothing will be extended for2013, and we will revert back to pre-Bush tax law.
Oneexceptional tax benefit that may disappear on January 1^st is the 0%tax rate on long-term capital gains (and qualified dividends) for those in the10% and 15% federal tax brackets.  If youwill be in one of these tax brackets for 2012 you may want to think aboutselling stock and/or mutual fund shares held more than one year that wouldproduce a gain before year-end. 
Considerthis.  While a loss on a “wash sale” isnot currently deductible there is nothing that stops one from recognizing again on such a sale.
A washsale is one in which you sell stock or mutual fund shares and within 30 daysbefore or after the sale you purchase(d) an identical, or substantiallyidentical, block of stock or mutual fund shares.
Forexample - On September 20th you sell 100 shares of XYZ Company. On October 1styou buy 100 shares of XYZ Company. The September sale is considered a “washsale”.
Let us saythat the September sale of the 100 shares of XYZ Company yields a long-termcapital gain of $2,000.  If your net taxableincome is such that you fall within the 15% tax bracket the $2,000 capital gainwill be taxed at 0% on the federal level. Your $2,000 gain is federally tax-free. You will, however, be subject to state income tax on the gain.
What youhave done for the future is increased your tax basis in the investment in XYZCompany for federal and state income tax purposes.  So when you do eventually sell the shares yougain will be $2,000 less, or your loss $2,000 more.
If youhave a sufficient amount available for the 0% tax rate for 2012 this may be agood idea whether or not this unique rate will expire on December 31^stor will continue either temporarily or permanently.  This 0% rate is a great tax planning opportunity that should be taken advantage of to the max each year. 
Before doinganything you should contact your tax professional and work through thetransaction on the Qualified Dividends and Capital Gains Worksheet for 2011 (inthe 1040 instructions) using $35,350 for Single, $70,700 for Married, or $47,350for Head of Household as the income threshold.  TTFN