Tax Planning (11/10)

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Thursday, 12 November 2009 01:15 Written by Mary Beth Pavia

As we approach the Holiday Season and yet another calendar year, there is a limited window available for us to implement various tax and other financial planning strategies for 2009. Please consider the following checklist to make sure your own planning priorities have been accomplished before it’s too late…

• Review your realized gains and losses for the year.  Do you have carry forward losses to utilize?  Do you have gains outside of our portfolio to consider?
• Keep in mind that the IRS has suspended the required minimum distribution (RMD) for 2009 only. Meaning that effective in 2010, regular annual RMDs will be reinstated and  need to be withdrawn from any qualified plans in order to avoid penalty.
• Have you already made any applicable contributions to your IRA, SEP IRA, Individual 401(k) or Roth IRA? Keep in mind that the contribution limit increased from $15,500 to $16,500 for your 401(k) this year and will remain at this limit for 2010.
• Have you already funded any desired 529 Plans or Education IRAs for children or grandchildren? 
• Have you already implemented your gifting strategy for the year?  The annual exclusion for gifts is $13,000 per donee in 2009 and will remain the same in 2010. 
• Do you have any unfulfilled charitable obligations?  If so, consider using appreciated shares of stock for these gifts. 
• Note that the estate tax exemption increased from $2,000,000 in 2008 to $3,500,000 in 2009.  While the federal estate tax is set to be eliminated in 2010, we expect Congress to change this and maintain the exemption near 2009 levels.
• Consider prepaying your entire 2009 annual property tax bill before year-end so you can deduct the entire sum on your 2010 tax return.   
• Consider paying your January 2010 mortgage payment in December of this year.  
• In general, consider postponing income and accelerating or “bunching” deductions.
• Congress has just extended and altered the First-Time Home Buyer Tax Credit benefit, making it available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home, capped on homes purchased for less than $800,000. In addition, the new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is capped at homes valued at $800,000 and below. To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer's principal residence.       
• If you own your own business, consider purchasing new business equipment before year-end.  You are able to deduct up to $250,000 of Section 179 expenses in 2009.
• Starting in 2010, individuals with more than $100,000 of modified AGI are free to convert their traditional IRA to a Roth IRA. For conversions in 2010, taxpayers have the option to spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012.
• Plan for the potential impact of the Alternative Minimum Tax by delaying the exercise of incentive stock options, delaying the recognition of capital gains or pushing out non-AMT deductible expenses. 
• Always consult with your CPA to avoid potential Alternative Minimum Tax (AMT) pitfalls.   
• It is also important to note that the  provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, which made significant changes in several areas of the US Internal Revenue Code by lowering tax rates and simplifying retirement and qualified plan rules are designed to sunset or revert to the provisions that were in effect before it was passed on January 1, 2011 unless further legislation is enacted to make its changes permanent.

Remember, the time for implementing tax-planning strategies is before the end of the year. The above information and ideas are intended only as a general overview of a few changes to tax law and some commonly used tax-planning strategies. This should not be relied upon as an all-encompassing analysis. As always, we strongly recommend that you consult with your CPA or tax preparer.  We are happy to make a referral to a trusted CPA if you would like additional help.

Finally, we remind you that estate, tax, charitable, education, and retirement planning review are all included as part of our investment advisory service.  We invite you to schedule an appointment for a comprehensive Bridge Evaluation review.