I prepared a “slide-show” overview of year-end moves for MAINSTREET.COM, but it has not been published as of yet. Please keep an eye out for it (in the Tax Center or here) as a companion piece to this post.
As I mention in the MAINSTREET piece, year-end tax planning is very difficult this year due to the irresponsibility of the cafones in Congress – who have been unable to get off their arses and pass any kind of extender bills this year.
The extender mess is two-fold. First we do not know everything that may be deductible for 2010. Second, as Congress has not extended or revised the “Bush tax cuts” for at least 2011, we have absolutely no idea what the tax rates will be for 2011, to say the very least.
There are several questions about what will be allowed for 2010 and 2011 that need to be considered when determining a year-end plan, but which currently cannot be answered.
Will taxpayers be allowed to elect to deduct state and local sales tax instead of state and local income tax for 2010 only, for 2010 and 2011, or will this option no longer exist - so that taxpayers considering the purchase of a new or used car or other motor vehicle in the near future can decide if they should do so before the end of 2010?
With the need to take required minimum distributions from IRAs and other plans before year-end, will retirees be able to make a direct transfer from their IRA to a charity to satisfy their 2010 RMD and keep the income out of their Adjusted Gross Income (AGI) – and therefore possibly increasing other deductions and reducing taxable Social Security?
Will the Residential Energy Credit, which currently expires on December 31, 2010, be extended for 2011 and beyond – so homeowners can decide whether or not to purchase energy-saving products or home improvements before year-end?
Will the tax rates for 2011 be increased – so that one should defer the receipt of taxable income to be claimed in 2011 and accelerate deductible expenses to be claimed in 2010?
And what about the dreaded Alternative Minimum Tax (AMT)?
The “best guess” of most tax experts is that, like 2006, Congress will pass an extender bill covering the AMT and the tax benefits that expired in 2009 in early December, after returning from the elections. And there is the possibility that this extender bill will also include at least a one-year, for 2011, extension of the “Bush tax cuts” for at least those with incomes of under $200,000, $250,000 for married couples.
Of course by the time this extender bill is finally passed it will not leave much time for year-end transactions – perhaps a month at best. And this will cause the IRS to delay the printing of forms and instructions, and delay the beginning of the tax filing season as the IRS gets its computer programs and systems “up to speed”.
I will try to keep on top of the issue when Congress returns in a few weeks, and will let you know developments as they happen here at TWTP.
As I have said in previous posts this irresponsibility is just one example of the fact that the members of Congress are idiots!
Hey – here is one year-end tax planning tip that I have never thought of suggesting before. If you are planning to die in the near future, and you will have a taxable estate, do so before the end of 2010, as it looks like there will be no federal estate tax for 2010!