Baird’s Steffen: Plan Now for Higher Taxes, Before It’s Too Late

New Whitepaper Looks at Potential Tax Law Changes and Offers Tips to Help Investors Prepare

MILWAUKEE, May 22, 2012
The 2012 Presidential election has put the spotlight back on taxes and tax policy. A new whitepaper from Baird’s Private Wealth Management Research team, “Investment Planning in an Uncertain Tax Environment,” encourages high-net-worth investors to plan now for higher taxes before it’s too late.

According to Tim Steffen, CPA, CFP®, Director of Financial Planning for Baird, “Tax law is subject to frequent changes from political and economic winds, and such winds are definitely blowing in Washington today. To capitalize on – or avoid the potentially negative impact of – likely changes, investors must be aware of what’s going on and be nimble in their reactions.”

Tax cuts enacted in 2001 and 2003 are scheduled to sunset after 2012, and a divided Congress could make passage of significant legislation nearly impossible. “The fundamental disagreements between the parties make the expiration of the 2001 tax cuts increasingly possible,” Steffen said. “When you add in the fact that most of the tax provisions of the 2010 Affordable Care Act take effect in 2013, it becomes increasingly likely that we could see significant tax increases next year.”

With tax increases likely, the months remaining in 2012 may offer investors the last chance to prepare. Baird’s whitepaper identifies three tax issues investors will most likely face and offers suggestions on how to address them:

Possible Change No. 1: Capital Gains
Capital Gains tax rates, now 0% for those in the 15% tax bracket and 15% for those in higher brackets, are set to rise to 10% and 20% respectively. Baird suggests investors consider accelerating gain recognition into 2012, diversifying concentrated positions, rebalancing portfolios and taking advantage of tax free gains (for those in the 15% bracket). Cautions Steffen, “We always advise clients that these decisions should be based on the investment merits first, with taxes as a secondary consideration.”

Possible Change No. 2: Dividends
Qualified dividends, a concept created with the 2003 tax act that taxes most payments received by stock investors at the same rate as long-term gains (15%), are scheduled to go away in 2013 when dividends will return to being taxed as ordinary income. Additionally, the new Medicare tax on investment income would also apply, adding another 3.8%. Steffen suggests looking for alternative sources of portfolio yield from a variety of investments. In addition, be aware that these changes may alter a company’s dividend policy and/or willingness to pay dividends.

Possible Change No. 3: Ordinary Tax Rates
Ordinary tax rates are also scheduled to increase across the board in 2013 making the difference between taxable and tax-exempt bonds even greater. Baird suggests high-income taxpayers consider a move toward tax-exempt bond investments. “As the demand for these bonds increases, so will their prices, which have an inverse relationship to their yields,” Steffen said. “So if you want to shift toward tax-exempt bonds, you’ll want to do so before demand raises prices, effectively negating the better yield.”

To schedule an interview with Tim Steffen on this or related topics, contact Amy Nutter at (414) 765-7250 or

About Baird
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 2,700 associates serving the needs of individual, corporate, institutional and municipal clients. Baird has more than $87 billion in client assets. Committed to being a great place to work, Baird ranked No. 21 on FORTUNE’s 100 Best Companies to Work For in 2012 – its ninth consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. For more information, please visit Baird’s Web site at
For additional information contact:
Amy Nutter
Baird Public Relations