CNBC Guest Blog: Kamen Cliff's SIlver Lining
On behalf of my fellow procrastinators, I would like to thank you for your gift of "The Fiscal Cliff." It has provided me with the deadline that I need to get things done. With the imminent prospect of significant changes to the tax code and sunsetting "perks," you've provided me with the motivation to finally determine what effect (if any) these looming changes will have on my (and my family's) financial future.
I will not squander the gift of motivation that the "last minute" (OK, the "last month" of 2012) created by your gridlock and bickering has given us all, and I will finally begin the process of getting my fiscal house in order.
I certainly hope that you will be able do the same.
Mr. John Q. Public
We all acknowledge and can identify with the phrase, "If it weren't for the last minute, nothing would get done."
Deadlines help many of us focus; a lot of people claim to do their best work under deadline pressure. Well, then, we all better get cracking, because a whole host of things may be changing—not just for the top 2 percent, but for all Americans.
Over the last few months we have been bombarded with warnings about the "damage" we will collectively suffer without Congressional action.
Here's a short list of some of the most talked-about tax law changes that may present you with problems and/or possible significant opportunities:
- Estate and gift tax rates. The cap on a lifetime exemption is currently set to revert from $5.12 million, back to $1.36 million. So: If you've got the resources, is now the time to give your heirs a nice holiday gift?
- Dividend tax rates. The current preferential tax treatment on qualified dividends may revert back to the ordinary income table, pushing rates from 15% to as high as 43.4% for those in the top bracket: So: Does that mean you should be selling all your dividend-producing stocks now?
- Capital gains tax rates: These could rise from 15% to 23.8% for some taxpayers. Even if you're in the lowest (15%-or-under) tax bracket, you will be affected, because currently you are federally exempt from paying any tax on capital gains at all. So: Regardless of your bracket, should you be accelerating gains and realize them before year's end?
- Alternative Minimum Tax (AMT) An estimated 25 to 30 million Americans may be shocked to see their 2012 taxes go up because the AMT annual "patch" expired in 2011 and its retroactive renewal is yet another component of the fiscal cliff. So: Should you be putting funds aside to cover a surprise 2011 tax bill now?
I've kept this list short because you've undoubtedly seen these and countless other issues covered ad nauseum over the past few months.
Though some decisions may have significant long-term benefits, many of them are tactical, short-term changes that will save you relatively insignificant amounts.
Do not let them distract you from the responsibility of thinking about the big picture.
That demands that you, as well as our elected officials in Washington, envision the future you are trying to finance and make the kinds of real long-term planning decisions and commitments that can make such a future a reality.
"The Fiscal Cliff" provides a great example of what happens in the absence of a plan, when you come up with solutions on only an ad hoc basis, treating issues as if they're items on a checklist. Tasks can be handled on a deadline, but planning requires time and contemplation.
First, you need to identify your goals, and then you have to think about how to reach them, working on on your own or, if need be, with the help of a financial professional.
Congress has given us a tutorial showing the consequences of not planning for the future strategically. Every short-term kick of the can may buy some time, but eventually the clock does strike twelve. We need to plan the appropriate actions lest our dreams for the future turn into pumpkins and mice.
(Watch More: Fiscal Cliff End Game In Sight: Pro)
As the clock ticks closer to 12/31/12, we'd all be wise to come up with our best work and not squander the benefits provided by the motivation of the last minute.
(Read More: Some Analysts Doubt Dire Predictions on Tax Increase Fallout)
Kenneth A. Kamen is a managing director of The Mercadien Group and president of Mercadien Asset Management and Mercadien Securities, as well as the author of the highly acclaimed book from Bloomberg Press,"Reclaim Your Nest Egg: Take Control of your Financial Future."