Tax Season Preparations And Notes

With 2013 underway and the fiscal cliff taken care of (for now), it is time to start gathering your financial information together to prepare your 2012 tax return. 

Sometime soon, you and your tax advisor will be looking at your earned income, capital gains and losses (realized and unrealized) and other financial information as you begin to compile your 2012 return. A simultaneous review of your investment portfolio may reveal strategies you can use to reduce your tax liability. Some of these strategies may have a direct impact this year, while others may be implemented over the next several years, depending on Internal Revenue Service rules. 

As you begin to prepare your taxes this year, you many want to consider coordinating the tax and investment planning process by having your tax advisor work along with of a Certified Financial Planner to conduct a thorough review of your options for both short-term and long-term investment goals.   

The IRS will begin accepting tax returns on Jan. 30, 2013, after updating forms and completing programming and testing of its processing systems following changes made in January under the American Taxpayer Relief Act. Most taxpayers should be able to begin filing on this date. A full list of tax forms that will not be eligible for filing by the Jan. 30 tax season open date is available at www.irs.gov. These forms will be accepted in late February or March after processing systems are updated. 

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said in a Jan. 8 press release. “This date ensures we have the time we need to update and test our processing systems.” 

Miller encouraged all taxpayers to file electronically for faster processing and direct deposit options. As a reminder, the IRS no longer mails packages of tax forms and instructions for filing paper returns. Instead, the IRS distributes only a postcard with instructions on where and how to get the forms. Electronic filing on the IRS website is free. 

FINANCIAL FACTS 

Way Off – The Fed Funds futures market was priced in February 2010 (i.e., three years ago) to reflect a 90 percent chance of a rate hike by the Fed no later than November 2010. The Fed has held 23 meetings since February 2010 and has not voted to raise short-term interest rates in any of the 23 meetings (source: Federal Reserve, BTN Research).    

Contrarian Indicator – Fifty-nine percent of individual stock investors were either “neutral” or “bearish” on the U.S. stock market on Dec. 28, 2011, as the S&P 500 was completing a 2.1 percent gain (total return) for 2011. The S&P 500 then gained 16 percent for 2012 (source: American Association of Individual Investors, BTN Research) .

Crystal Ball – Three of 10 equity strategists asked on Dec. 19, 2011, to predict where the S&P 500 would finish on Dec. 31, 2012, made predictions that were within just six points of the actual 2012 year-end close The S&P 500 advanced from 1,220 on Dec. 19, 2011, to 1,426 on Dec. 31, 2012 (source: Barron’s, BTN Research).