It’s ridiculous that I even have to consider this. I’ve already invested a lot of sweat and tears to be able to put money into the market, so why do I have to consider making adjustments to our financial plan before January 1st, 2013?
Bush tax cuts are expected to sunset
I am not part of the 1% and we already make smart decisions with our money. I don’t have much to worry about, right?
The problem is: Taxes. Or should I say an increase in them because a bunch of cuts are set to expire at the end of this year. Goodbye 15% capital gains limit, hello tax increases.
Taxes rule our financial decisions
When did taxes become such a large portion of our decision making processes?
The answer: When we started to have some real savings.
Currently, dividends on investments outside of retirement accounts are taxed at 15%. If nothing is done before the TY2013 filing then the earnings for an average Joe’s portfolio will be taxed at ordinary income rates (between 20-31% for most).
I have to worry that our investments will be taxed at a higher rate and re-visit our estate planning. But that is ridiculous because we don’t have a whole lot saved – we have less than $50,000 in non-qualified accounts.
Ugh. These changes in the tax code are causing me to do some math. I have three options:
- Selling our mutual funds now
- Keeping them there and risking higher capital gains taxes later
- Moving it to something completely different – like real estate.
The options aren’t all that great
Selling it now seems pretty ridiculous to me. What would I do with all that money?
- Hide it under my mattress
- Put it into a bank savings account at .001%
- Spend it
None of those are smart options, so we can skip onto the next one.
Purchase real estate
I guess we could take the money and buy some real estate but this small amount of money won’t buy much.
- Using it only as a down payment and getting another mortgage would be stupid
- There is still the issue of property taxes to deal with
- I would make a really crummy landlord
Again, not great.
Risk higher capital gains tax
If I leave the money where it is, then I risk higher taxes in the future.
- The capital gains tax is supposed to change from 15% to ordinary income rates – almost double what we have been paying.
- We would lose money in the market if the economy goes downhill
- This option does carry more risk than the others
It’s not pretty.
Financial planning requires faith
Being as calculated as I can, my decision could still be the wrong one. However, I believe in the American economy and believe my investments will be greater in the future then the are now. This requires a level of faith, a factor that has no bearing on evaluating risk.
I shouldn’t have to burn brain cells to figure this stuff out. I believe in American businesses. I believe there are good people who will make good decisions despite the bureaucratic flywheel that just can’t seem to stop churning promises of a better tomorrow for the sacrifice of today. I have faith in our economy so I’m going to keep investing in my future, my family’s future, and my country’s future.
Do you have any suggestions? What are you doing to prepare for the Fiscal Cliff?