If you had any thoughts of selling your stocks between now and 2017, doing so within the next month may be strongly advisable from a tax point of view, says Wilmington Trust.
That is because it would take a minimum five-year holding period to outpace the advantage of today's 15% capital gains rate, says the century-old wealth advisory firm founded to manage the DuPont family fortune in a year-end report.
The report's authors, trust attorney Carol Kroch and financial analyst Sam Fraundorf, note that central bank intervention in financial markets has not only produced low inflation-adjusted returns, but has also narrowed return differences among asset classes–a trend they expect to persist.
But while the final results of current fiscal cliff negotiations in Washington remain unknown, the upward direction in tax rates is a certainty.
"… If you have been waiting to better position your investments, now is the time to make those improvements, since we do not think it will ever be cheaper from a tax standpoint to do so," Kroch and Fraundorf write.
Without a legislative fix, capital gains taxes are scheduled to rise from 15% to 20%; the tax on dividends will rise from to 15% to as high as 39.6%; the highest rate on income tax will rise from 35% to 39.6%; and the wealthiest taxpayers will pay an additional 3.8% rate on income tax and 0.9% on wages and self-employment income.
For those reasons, the Wilmington Trust report suggests that, generally speaking, high-net-worth clients will benefit from both realizing gains this year and deferring deductions until 2013.
