Fiscal cliff looming? Ten tax moves to make now.

Americans are facing an unprecedented tax increase of nearly $500 billion on Jan. 1, 2013, if the US plunges over the fiscal cliff and the Bush tax cuts are allowed to expire. On a dollar basis, this would be the largest tax increase in history. Are you ready? There is still time to position yourself to take advantage of the favorable tax rates in effect this year, but you need to act now. Since no one’s sure what will happen, the trick will be to remain flexible so you can be nimble should there be tax changes or delays. These are the 10 year-end strategies I recommend:

1. Harvest capital gains in 2012

Ann Hermes/The Christian Science Monitor/File
A poster hangs in the halls of the US Internal Revenue Service building in Washington, D.C., in this March file photo. Here are 10 tax strategies to protect yourself from the tax increases that make up part of the 'fiscal cliff.'

Harvesting gains is similar in some ways to harvesting losses. The concept is to sell appreciated securities you’ve held at least 12 months to realize the long-term gain for tax purposes. You can immediately repurchase the same asset because there is no wash sale rule for realizing gains. This allows you to pay tax on the gain in 2012, when rates are low, and establish a new cost basis in the asset to minimize increased gains that may be taxed at higher rates if tax increases related to the fiscal cliff occur.

Anyone in the 10 or 15 percent tax bracket this year should seriously consider realizing gains. Long-term capital gains are taxed at 0 percent this year and may be taxed at 8 to 10 percent in 2013.

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