- Make tax-free gifts of up to $13,000 per recipient per year. You can do the same in early 2010 (it stays the same at $13,000 in 2010). You do not get a tax deduction for this but it does permit the gift to work for 2009. By using proper tax planning, you may be able to gift away appreciated securities to your children and have them sell the securities, thus enabling the family to pay a lower overall capital gains tax rate in 2009 or 2010 (but watch the tricky “kiddie” tax rules).
- If you bought a new home and paid mortgage insurance, the premiums are deductible in 2009 (and may not be after 2010) if your AGI is $110,000 per year or lower.
- Use up Flexible Spending Accounts, including medical accounts that may be in a “use it or lose it” status. If this is the case, purchase eyeglasses, medications, make dentist appointments, etc. to absorb the excess funds. The IRS does now permit plans to establish a 2 1/2 month extension into 2010 to use up the 2009 funds.
- Be aware that the “kiddie tax” provisions have recently changed and now apply to all children up to the age of 18 (from the prior age 14 limitations). This means that income from your children may be taxed at your higher tax bracket. To avoid this, check the investments in the child’s account and make sure that they do not produce enough current income to make this a “negative” from a tax perspective.
- Maximize the sales tax deductions. This is especially valuable in the seven states without an income tax. Rather than use IRS tables, you are permitted to use actual receipts. You also have some planning opportunities if you purchased a big-ticket item such as a vehicle or boat in 2009. Also, consider making the big-ticket purchase in 2009 to accelerate the Schedule A deduction.
- If you have large gambling winnings, you can take a trip to gamble and claim the (likely) losses as an itemized tax deduction. While we do not encourage our clients to gamble for tax reasons, this may be one instance in which you can get a reduction in the amount of taxes owed for 2009. Please be aware that you must itemize your deductions on Schedule A before you can claim these losses.
- Buy Business Assets. Businesses get a 50% bonus depreciation for assets placed into service before December 31, 2009. With proper planning and potential use of Section 179 as well, 2009 is an excellent year (from a tax perspective) to add new assets to your business operations.
- Open up and fund an IRA before year end (or at least before April 15, 2010). The types of IRAs vary and offer different current and future tax benefits depending upon the type. However, all taxpayers who have earned income in 2009 are eligible to establish one of these very favorable retirement plans and it should be a part of all taxpayers’ current year tax strategies. You can fund these accounts up to your earned income or the maximum contribution amounts ($5,000 per year for an IRA– plus an extra $1,000 if you are over age 50), whichever is less.
- Establish a Keogh plan for your business. The plan must be established on or before December 31, 2009, to be effective for 2009. You can fund the plan (if established by 12/31/09) up to the due date of the tax return.
- Hire family members home for the holidays. If you have a child in college and also operate a home-based or small business, why not hire the child to perform services for the business and claim an end-of-the-year tax deduction for any compensation paid? This also has the added benefit of shifting income to someone in a (presumably) lower tax bracket.
- Pre-pay/”bunch” expenses, including some medical expenses (to increase the amounts you can deduct after the 7.5% floor on Schedule A has been reached) and miscellaneous itemized deductions subject to the 2% floor. Please be aware that prepaying any state taxes, including income and/or property, may help with the tax deductions but may have an adverse impact on the AMT you may eventually owe. If you believe that AMT may be an issue for you, we strongly recommend that you consult with your tax professional to see if any tax planning can assist you.
Showing posts with label Year End. Show all posts
Showing posts with label Year End. Show all posts
Wednesday, December 2, 2009
Tuesday, December 1, 2009
Year End Tax Planning Moves For 2009 (Part 1)
It is that time of the year again and here is our annual reminder for some last-minute tax planning tips that may save you money come April 15, 2010:
- Make charitable contributions by December 31, 2009, to obtain the tax deduction for 2009. Remember that you must back up all cash contributions (including those by check and credit cards) with a receipt or bank record showing the name of the charity, the date of the contribution and the amount. For credit card donations, these are valid as long as they are charged to the card before 12/31/09 (i.e. you can pay them in 2010 and get a 2009 deduction).
- Buy an automobile. There are special tax deductions for automobiles if they are bought and placed into service on or before December 31, 2009. For business owners, there is a maximum first-year deduction of $10,960 in 2009 (this will go down to $2,960 in 2010). Individuals may also be able to deduct the sales taxes on the vehicle as well (up to a purchase price of $49,500– there are income phase outs as usual on this tax deduction).
- Offset capital gains and losses. You are permitted to sell stocks that are money losers for you to offset other capital gains you may have for the year. If you have a capital loss carry forward (available if you sold stocks at a loss in previous years but could not use all of the losses due to the $3,000 annual deduction limit), you can sell stocks at a gain and perhaps pay no taxes if you have sufficient losses to use up.
- Utilize residential energy tax credits. If you buy certain energy-saving windows, insulation, doors, etc. and put them into use before December 31, 2009, you may save up to an aggregate of $1,500 in taxes via this energy credit.
- Pay discretionary business expenses by December 31, 2009, to get the tax deductions in 2009. The same applies to delaying the reporting of income for cash-basis taxpayers (by delaying the collection of $ from customers until 2010, you also delay the reporting and payment of taxes until 2010).
- Convert your Regular IRA to a Roth IRA (if you later determine that this was a mistake, you have until October 15, 2010, to recharacterize the conversion and change it back).
- Make charitable contributions by December 31, 2009, to obtain the tax deduction for 2009. Remember that you must back up all cash contributions (including those by check and credit cards) with a receipt or bank record showing the name of the charity, the date of the contribution and the amount. For credit card donations, these are valid as long as they are charged to the card before 12/31/09 (i.e. you can pay them in 2010 and get a 2009 deduction).
- Buy an automobile. There are special tax deductions for automobiles if they are bought and placed into service on or before December 31, 2009. For business owners, there is a maximum first-year deduction of $10,960 in 2009 (this will go down to $2,960 in 2010). Individuals may also be able to deduct the sales taxes on the vehicle as well (up to a purchase price of $49,500– there are income phase outs as usual on this tax deduction).
- Offset capital gains and losses. You are permitted to sell stocks that are money losers for you to offset other capital gains you may have for the year. If you have a capital loss carry forward (available if you sold stocks at a loss in previous years but could not use all of the losses due to the $3,000 annual deduction limit), you can sell stocks at a gain and perhaps pay no taxes if you have sufficient losses to use up.
- Utilize residential energy tax credits. If you buy certain energy-saving windows, insulation, doors, etc. and put them into use before December 31, 2009, you may save up to an aggregate of $1,500 in taxes via this energy credit.
- Pay discretionary business expenses by December 31, 2009, to get the tax deductions in 2009. The same applies to delaying the reporting of income for cash-basis taxpayers (by delaying the collection of $ from customers until 2010, you also delay the reporting and payment of taxes until 2010).
- Convert your Regular IRA to a Roth IRA (if you later determine that this was a mistake, you have until October 15, 2010, to recharacterize the conversion and change it back).
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