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Your Take: Doing Anything Because of the Fiscal Cliff?

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Taxes Form 1040As we near the end of 2012, the fiscal cliff is becoming bigger and bigger news. If nothing’s done, taxes will go up for everyone and we’ll have another fine example of politicians being politicians. Remember, this was something completely man-made. They did this in the debt ceiling debate because they figured that something this drastic would never actually happen. It would be severe enough to spur politicians to agreement and it appears, as the days pass, that they underestimated their ability to recognize great pain.

Unfortunately for everyone else, there really isn’t much that we can do about it. When you combine the uncertainty of a deal getting done and the certainty of tax rates going up, I’ve been mostly on the sidelines in terms of changing anything specific. I have sold stock holdings I’ve had for several years but the logic behind them has been mostly housekeeping, not taxes. A few of those holdings I sold because I wanted to capture those gains (and harvest as many losses as I can) since taxes on long term capital gains will almost certainly go up, deal or not.

Other than that, I haven’t done much of anything else. Have you done anything because of the fiscal cliff?

(Photo: aidanmorgan)

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15 Responses to “Your Take: Doing Anything Because of the Fiscal Cliff?”

  1. NateUVM says:

    We have no idea what compromise will eventually get passed. Whether it’s before the end of the year, after some sort of extension (a possibility because the people playing by the rules have the power to change them, remember!) or, after diving off “the cliff” full-force, ANYTHING is possible. Heck, if they kick the can down the road and extend, we have no idea how long the current paradigm might exist.

    Personally, unless you are in the income bracket being discussed (+$200/250k), I don’t think that there is much reason to expect your taxes to go up once a deal is reached. That’s one cohort both sides have publicly tried to protect (and use) in any prospective deal. As for Capital Gains, specifically, Obama may be forced to give in on that one if rates and dividends on top earners are his top priorities. I mean, what else would/could he compromise that might also benefit him (and his relationship to the business community)? But still, only if you are a top earner, right?

    But, what do I know? It’s all conjecture. Bottom line is that, while the possibility certainly exists that all rates (income, qualified dividend, long-term capital gains…) are subject to increase, we have no idea. As such, to make any investment decision based on what “might” and “could” happen, seems a bit premature to me. To sell potential future gains (assuming you had a good investment in the first place) for a couple extra percent in taxes…maybe…?

    Obviously, I think “wait-and-see” is the best approach here.

  2. cubiclegeoff says:

    Not worth the effort. Once I get my first paycheck I’ll adjust anything necessary to make sure I am bringing home enough while funding retirement and paying taxes and everything.

  3. I haven’t done anything and there really isn’t too much that I could do even if I wanted to. My income is pretty set on when it comes in and I’m not going to accelerate any expenses.

  4. Ray says:

    I intend to wait it out until the last week or so and then cash out my long term gains and harvest losses.

    I feel that Obama has the upper hand here, even if we go over the fiscal cliff and everyone’s tax rate goes up. Its really not that bad for low income earners.

    Because its a percentage amount, poorer people (who typically do not have much income in stocks) will only have a nominal increase, while those wealthier will pay much more in comparison.

    Come the meeting after the cliff, Obama will have the advantage as he can start negotiating new laws to reduce the amount of tax people will have to pay. A much easier job than trying to reform the current bush era tax breaks.

  5. No, I haven’t done anything but regret not buying a stock that had a special dividend for shareholders in a date in November. I hesitated on buying the stock because of F.C. jitters and missed the bonanza–would have paid my brokerage fee.

  6. M Sandra says:

    Well the 2% increase in SS withholding will take a bigger chunk. I’m nowhere near the 250k mark so that chunk is significant to my monthly budget and means I won’t be contributing as much to my 401k. Nuts.

  7. Jim says:

    Aside from the SS withhold going back up to its original rate, the big exposure for many is the as-yet unpatched AMT. If there is no patch, the expectation is that millions of addition filers will fall into the AMT, for potentially large amounts.

  8. freeby50 says:

    Theres nothing to do. Nothing has happened yet.

  9. I haven’t done anything yet. I supposed at the beginning of the year I will look at what happens and decide if I need to adjust the deductions on my check. At this time my investments are so small I am not changing anything.

  10. Jim M says:

    I’m saying my prayers – hoping they will come to their senses and act to prevent us from going over the cliff. Other than that, afraid I just don’t know what to do.

  11. fabclimber says:

    Many companies will make bonus payments this year instead of next so they are taxed to top employee’s at this year’s rates. They are scrambling now to get good estimate of company earnings on which they can base the bonus payments

    Now do you understand how the rich get richer?

  12. govenar says:

    Harvesting losses would be better to skip this year and do in another year when the tax rate is higher, right?

  13. admiral58 says:

    I maxed out my Roth 401k this year, since I’m in a lower bracket than next year

  14. Jerry says:

    I haven’t but I wonder if I should as insurance for this possible disaster. It might lead lots of people to do things to safeguard their money.

  15. mannymacho says:

    I am watching for a big stock dip if/when the first deal doesn’t go through, and a big surge after they do come to an agreement.


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