Although 2011 federal tax law remained relatively stable, investors are looking ahead to 2012 with trepidation as an “overhang of uncertainty” about what congress will do to reduce national debt and improve the economy clouds the future when it comes to tax reporting. Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, says that many of his company’s clients are “unhappy…because they want to know what the rules are.” Regulations on how investments are reported are likely to change, including one change that “investors can plan for,” says Stretch, that affects both mutual funds and most Exchange Traded Funds (EFTs). In 2012, investors must decide before they sell what reporting method – average cost or first shares acquired – that they want to use to report to the IRS information on the cost basis of investments. “Cost basis” refers to the “original value of an asset for tax purposes…adjusted for stock splits, dividends and return of capital distributions”. It is used to determine capital gains on investments.
Analysts are questioning the wisdom of many classic investing strategies in the shadow of looming changes and reforms. Pre-construction investing, already on shaky ground, is likely to become even harder to predict in the coming year, while many investors with offshore accounts protecting their monies are having to determine whether or not their investments would be better moved home as the IRS “ramps up efforts to flush out taxpayers hiding money abroad” or whether they should move even more money offshore into new – and fully legal – offshore investments. With all the uncertainty, the markets stand to stagnate while investors weight their options. Do you think now is a good time to change courses, or are you leaving your money and your investment planning strategies the way they are?
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