UTSanDiego.com

How to Be Ready for a Fiscal Cliff Deal

NEW YORK ( TheStreet) -- It's risky to count your chickens before they're hatched, but it looks like there really could be a solution to the fiscal cliff mess before New Year's Day. In that case, savers and investors should prepare to move fast -- to count their chickens right away, as it were, and make the most of any tax-saving opportunities.

If so, all those bells and whistles on financial accounts could come in handy -- features such direct deposit and the ability to transfer funds and pay bills from your computer and smartphone.

The latest reports say President Barack Obama and House Speaker John Boehner are closing in on a deal that would leave tax rates in place for just about everybody -- everyone earning less than $400,000 a year, perhaps. A deal would avert the hefty tax hikes that had been set to kick in automatically on Jan. 1, and that would have a big effect on year-end tax planning.

Consider, for example, the investor thinking about selling a stock or mutual fund that had lost money. If individual tax rates were to jump after the first of the year, it would pay to postpone the sale until 2013, because the deduction on the tax loss would be greater. But if tax rates stay the same, it would pay to take the loss in 2012. The deduction would be no bigger, but the tax saving would come sooner.

Or imagine an investor thinking of selling a profitable investment: If rates were to rise, it would pay to sell this year to incur a lower tax. If rates will stay the same, selling after the first of the year would delay the tax bill for 12 months without making it any bigger, and the investor could take more time to evaluate the decision.

Conditions have been especially confusing for people thinking of making significant charitable contributions. If rates were to rise in the new year, waiting until then would earn the donor a bigger deduction. But there's been talk of capping such deductions, which might make it better to donate before any new rules take effect. If the rules will not change, donors can go ahead and make contributions this year, capturing the tax deduction sooner.

It can make your head spin. And, of course, the big problem is that time is running out. Year-end tax moves must be done before the close of business Dec. 31.

Even those who are not contemplating year-end maneuvers should take this as an object lesson: At one time or another, anyone may face a short deadline. In that case you don't want to have to race to the bank to deposit a paycheck or move money from one account to another.