All Things Financial Planning Blog

Tax Tips for This & Next Year

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As we head into the fourth quarter of the year, now is a good time to consider year-end tax planning for 2009 and look ahead to what’s new for 2010.

First let’s consider what you might do between now and year-end to manage your 2009 income tax liability. We recommend you work with your CPA to see if any of these strategies could benefit you.

Harvest investment losses to offset any capital gains taken this year. Chances are you have some loss positions in your portfolio. If you’ve been fortunate enough to have realized any capital gains this year, consider selling loss positions to offset your gains. Even if you haven’t realized any capital gains, you can use up to $3,000 of capital losses to offset ordinary income, like salary, pension, and business income. A few caveats: You cannot re-purchase the same stock or mutual fund within 30 days of the sale or the loss deduction will be disallowed. Also, if you are carrying unused losses forward from 2008, you may not need to generate any additional losses this year to offset gains.

Maximize retirement savings. If your employer sponsors a 401k, check to see if you will have contributed the maximum tax deferred amount by year-end. For those under age 50, the maximum is $16,500 this year and for those over 50 it’s $22,000. If you have self-employment income, you can set up a retirement savings plan to defer some of your income (even if you participated in an employer’s 401k plan). There are certain types of plans that can be set up and funded all the way until the date you file your return.

Use up flexible spending accounts. If you contributed to a flexible spending account for health or dependent care expenses, you generally have until the end of the year or until the middle of March 2010 to “use it or lose it”. Make sure you claim the full amount before the deadline passes (check with your HR department for your company’s claim deadline).
Put back 2009 Required Minimum Distributions taken from an IRA. Congress passed a tax-break waiving the requirement for persons over age 70 ½ to withdraw a minimum amount from their IRA in 2009. If you are subject to the RMD rules and took a distribution for 2009, you can put it back by November 30, 2009 if you don’t need the cash.

Take advantage of energy credits. Certain energy-saving home improvement and home building expenses are eligible for a tax credit until December 31, 2010. To learn more about what’s eligible go to

Bunch itemized deductions into alternate years. This strategy takes some careful planning but can pay off nicely. If your total itemized deductions are usually close to the standard deduction ($11,400 for married filing jointly, $5,700 for single), you can bunch together expenditures for itemized deductions every other year and claim the standard deduction in alternate years. This strategy works best if you can control the timing of payments for your deductible expenses, such as property taxes and charitable donations. Since some deductible expenses, such as property taxes, are disallowed for the alternative minimum tax (AMT), you should be careful not to trigger AMT with this strategy.

Use highly appreciated investments instead of cash for year-end donations. Although the stock market has fallen significantly below its historic highs, you may still own appreciated investments. You can give shares of stock or mutual funds you have owned at least one year to a charity and get a tax deduction for the full market value of the investment, not just what you paid for it. This allows you to avoid capital gains tax that you might have incurred by selling the appreciated investment. There are certain limits that apply to how much you can deduct.

There are several tax breaks expiring at the end of 2009 unless Congress acts to extend them forward. You may be able to take advantage of some of these before year-end.

  • Deduction for sales and excise tax paid on the first $49,500 for new vehicles purchased between 2/17/09 and 12/31/09
  • First-time homebuyer credit for 10% of the purchase price up to $8,000 (expires November 30, 2009)
  • Teachers’ classroom expense deduction of $250
  • Bonus depreciation and enhanced section 179 expensing for businesses
  • Higher-education tuition deduction of $4,000, phased out at higher income levels
  • Itemized sales tax deduction
  • Tax-free unemployment compensation up to $2,400
  • Charitable contributions made directly from an IRA
  • COBRA premium assistance if employment is terminated before 12/31/2009
  • Additional standard deduction for real estate tax up to $500 for single filers and $1,000 for married filing jointly
  • AMT exemption increase

Looking ahead to 2010, we are keeping a watch for legislation involving the scheduled estate tax repeal. Back in 2001, the Economic Growth and Tax Relief Reconciliation Act phased up the estate tax exemption amount over several years to its current level of $3,500,000 with complete repeal of the estate tax for 2010. This law contained a “sunset provision” that meant unless Congress acted before 2011, the estate tax would revert to laws in effect in 2001. This means that if nothing is done, there will be no estate tax in 2010 (making it a good year to die!) and in 2011 the exemption will drop to $1,000,000.

Also in 2010, more taxpayers will have an opportunity to convert their traditional IRA or 401k to a Roth IRA. Currently, only taxpayers with adjusted gross income under $100,000 can make this conversion. In 2010, all taxpayers, regardless of income levels can convert. Why would you want to do this? The answer is complicated and depends on several factors including your income tax bracket – both now and anticipated, your ability to pay the resulting income taxes on converted IRA funds, whether you believe income tax rates will go up or down in the future, your investment timeline and your specific financial and estate planning objectives. We recommend discussing this topic with your financial and tax advisors before the end of 2010.

Tax planning should always be a coordinated exercise with your CPA and other financial advisors. The end of the year seems to close in quickly as we near the holidays so the earlier you get started the better. You can search for and select a financial planner at this Web site PlannerSearch.

taraScottinoTara Scottino, CFP®
Senior Vice President
Carter Advisory Services
Dallas, TX



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Author: Tara Scottino, CFP®

Tara L. Scottino, CFP®, is senior vice president of Carter Advisory Services, Inc. (CAS), the registered investment advisory firm affiliated with Carter Financial Management. Tara is responsible for the design and integration of each facet of our clients’ multi-disciplinary plans and is directly involved in pursuing the achievement of each client’s financial plan objectives. As Senior Vice President, Tara also oversees daily office operations while providing technical support for the planners of Carter Financial Management. Prior to joining CAS, Tara was Senior Vice President of Investments and Planning for a local wealth management firm whose core client base consisted of ultra high net worth individuals. Tara was responsible for financial planning (including advanced estate and tax planning) and portfolio management for those ultra high net worth individuals. Tara also managed team members, including workflow, team member recruitment, training and development. Tara also has extensive experience in designing portfolios and financial plans for established families as a financial advisor with Merrill Lynch Private Client Group and specialized in high-net worth clients at Wells Fargo Private Client Group. Tara is consistently recognized as one of Dallas’ Best Financial Planners by D Magazine and has been invited to speak on several occasions. The Financial Planning Association (FPA) invited her to be a guest speaker at their national Symposium in 2006 and she was a guest panelist at FPA’s Dallas conference, Transitioning into the Financial Planning Profession. She was also a featured speaker at the Carrollton/Farmers Branch Independent School District, Expanding Your Horizons conference.

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