 |
| Let us help you manage it all. |
Resource Center
Year-end Tax Planning Strategies
As we approach year-end, there is still time to take action to lower your 2009 tax bill and add to your tax-advantaged retirement accounts. Here are a few ideas to get you started before year-end. This is by no means an exhaustive list, so please contact us for additional details.
Make the standard deduction work for you. If your itemized deductions are just at or below the standard deduction (currently $11,400 for joint filers and $5,700 for singles), they don't generate any tax benefit for you. However, you can bunch itemized deductions from two calendar years into a single tax year to take full advantage of them and exceed the standard deduction that year. Then you can take the standard deduction the next year. Following this two year pattern results in greater deductions overall. Deductions that work well for this strategy include charitable contributions, property taxes, the fourth quarter estimated state income tax payment, and your January mortgage payment.
Consider selling appreciated securities. It may be a good time to consider selling capital assets (e.g., common stock) with a low cost basis. The maximum capital gains tax rate is 15% for gains from sale of qualifying assets held more than one year. In fact, taxpayers in the 10% and 15% ordinary tax brackets can do even better by taking advantage of the 0% capital gains rate in 2009. The 15% maximum tax rate is available for both regular and alternative minimum tax (ATM). In addition, qualifying dividends received during 2009 will generally be taxed at the 0% or 15% capital gain rates.
Contribute to your traditional or Roth IRA. You can contribute up to $5,000 ($6,000 if your age 50 or older by year-end) to your IRA in 2009 if certain conditions are met. For married couples, the combined contribution limits are $10,000 ($5,000 each) and $12,000 ($6,000 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income. In addition, contributions to traditional IRAs may be tax-earned income. In addition, contributions to traditional IRAs may be tax-deductible, subject to limitations.
Contribute to your employer-sponsored retirement plan. The 2009 annual deferral limit for qualified retirement plan is $16,500. If you are at least age 50 by year-end, you can contribute and additional $5,500 to 401(k), 403(b), and 457 plans. These contributions normally decrease your taxable income and thereby lower your tax bill.
50% bonus depreciation. Qualifying equipment, which includes most tangible personal property and software and certain leasehold improvements acquired and placed in use during 2009, is eligible for an immediate 50% bonus depreciation deduction. This is in addition to the normal depreciation deduction on the remaining balance.
Once again call us for additional year-end tax planning ideas or to discuss any tax compliance or planning issue.
Tax Savings Investment Strategy
While taxes should not be the main consideration when selling investments, they certainly need to be considered since they can make a significant impact on your investment return. With that in mind, here is a tax-smart strategy to consider as you analyze your investment opportunities and decide what to do about gains. that is, should you sell now with the profit taxed at ordinary rates or wait until the stock qualifies for long term capital gains treatment/
If the stock sale qualifies for long term capital gains treatment, it will generally be taxed at a maximum tax rate o 15%. Otherwise it will be taxed at your ordinary income tax rate, which can be as high as 35%. Generally, you'll pay less in taxes (and keep more of your gains) if the stock sale qualifies for long-term capital gains treatment. The amount of taxes you'll save depends on your ordinary income tax bracket.
To qualify for the preferential long-term capital gains rates, you must hold the stock for more than 12 months. The holding period generally begins the day after you purchase the stock and runs through (and includes) the date you sell it. These rules must be followed exactly, because missing the required holding period by even one day prevents you from using preferential rates.
The question then becomes: Are the tax savings that would be realized by holding the asset for the long-term period worth the investment risk that the asset's value will fall during the same period? If you think the value will fall significantly, liquidating quickly, regardless of tax consequences, may be the better option. Otherwise, the potential risk of holding an asset should be weighed against the tax benefit of qualifying for a reduced tax rate.
Comparing the risk of a price decline to the potential tax benefit of holding an investment for a certain time is not an exact science. However the following should be considered:
- Your expected ordinary income tax relative to the anticipated capital gains rate.
- The amount of appreciation that will eventually be taxed
- How much longer the asset must be held to qualify for favorable capital gains rates.
- Whether any existing capital losses could offset the gain (and benefit of the lower rate).
Please call us to discuss this issue or any personal or business tax-savings idea.
Substantiating Charitable Contributions
As we approach year-end, many of us may need to catch up on our charitable contributions for a number of reasons in addition to a tax break. So let's briefly review the IRS rules on deducting charitable contributions. A donor will not be allowed any deductions for a contribution by cash or check , or any other monetary gift regardless of the amount unless the donor retains either (1) a bank record that supports the donation or (2) a written receipt or communication from the charity showing the name of the organization, date, and amount of the contribution.
Property donations valued at less than $250 must be substantiated by a written receipt or letter from the charitable organization showing the organization's name, the date and place of the contribution, and a detailed description of the property. Donors must also obtain a written acknowledgement from the charity if the value of the contribution (in cash or other property) is $250 or more - a canceled check or other reliable records are not sufficient proof.
Please contact us if you have any questions about substantiating charitable contributions.
Our company is committed to assembling and making available current information, resources and tools to assist and educate you. We are confident that you will find this page an invaluable resource for questions related to personal or corporate taxes, starting and managing your business, estate planning and an array of other topics.
Remember there is no substitute for professional advice, so feel free to contact us if you have any questions.
|
