Friday, October 30, 2009


It’s “That Time of Year Again” – time to do your year-end tax planning.

The basic concepts of five of the posts I wrote for a Year-End Tax Planning Series titled “It’s That Time of Year Again” back in October and November of 2007 will probably still apply. Before I go any further I suggest you read over these posts. As you do you can, for the most part, substitute 2007 and 2008 with 2009 and 2010.






And here is some tax information that should be considered from another Fall 2007 post –

I have always told my clients that, for tax purposes, you should get married early in the year and have children late in the year. Your filing status is determined by your situation on the last day of the year – December 31st. If you get married on December 25th you are considered by the IRS and your state to be married for the entire tax year, and must pay tax accordingly.

As I mentioned in a recent post, the marriage penalty is alive and well in the Tax Code. If both husband and wife work they will most likely pay more income taxes as a married couple, whether filing joint or separate, then as two single filers. Since you are going to pay for the privilege for the entire year no matter when you tie the knot, by marrying early in the year you get to enjoy the corresponding benefits (?) of marriage for most of the year

You can click here to download a “Year End Tax Planning Worksheet”. And here to learn what is new in taxes for 2009.

Year-end planning will be somewhat difficult this year as we really do not know what taxes will be like for 2010. It had originally been thought that BO would attempt to totally revise the Tax Code in 2010. But recent remarks by Treasury Secretary Timothy “Turbo Tax Screwed Up My Taxes” Geithner leads us to think this may not happen. As Kay Bell reported in her post “Geithner Talks (a little) About Taxes”, which was included in a recent BUZZ edition –

Asked about the prospects for tax reform, Sheppard reports that Geithner dodged the question and indicated that it would be far down the line. Economic growth and public confidence about the economy's future take precedence, he said, followed by deficit reduction, which would require tough political choices.

With those items before it on the policy to-do list, it's probably safe to say that Obama's stab at tax reform is going to suffer the same sad fate as did Dubya's tax revamp effort

So it is unsure if there will be any substantial tax changes for 2010. The general rule is that when in doubt follow traditional year-end strategies.

What we do know is that the special “0%” tax rate on qualified dividends and long-term capital gains will expire on December 31, 2009. So, depending on your level of income, you should do what you can in the next two months to take maximum advantage of this special rate.

The following items, as they exist under current law, should also be taken into consideration when formulating your year-end tax plan.

The items that have become known as “extenders” – such as the above-the-line deductions for educator expenses and tuition and fees, the option to deduct state and local sales taxes instead of state and local sales taxes, and increased AMT exemptions among others, as well as several special deductions allowed for 2009 only, will all expire on December 31, 2009. So 2009 may be your last chance to claim these items. I will put together a list of expiring tax breaks for a future post.

Personal exemptions and total standard deductions are no longer reduced based on Adjusted Gross Income (AGI). So 100% of personal exemptions and allowable itemized deductions are allowed for all taxpayers for 2010.

Starting in 2010, individuals with more than $100,000 of modified Adjusted Gross Income are free to switch a traditional IRA to a Roth IRA. For conversions in 2010, taxpayers can spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.

Let me know if you have any general questions about 2009 year-end tax planning.


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