Articles Posted in Estate Planning

Essential year end tax planning

Year-end tax planning could be especially productive this year because timely action can nail down a host of tax breaks that won’t be around next year unless Congress acts to extend them. These include, for individuals: the option to deduct state and local sales and use taxes instead of state income taxes; the standard or itemized deduction for state sales tax and excise tax on the purchase of motor vehicles; the above-the-line deduction for qualified higher education expenses; tax-free distributions by those age 70 1/2 or older from IRAs for charitable purposes; and the $8,000 first-time homebuyer credit (expires for purchases after Nov. 30, 2009). For businesses, tax breaks that are available through the end of this year but won’t be around next year unless Congress acts include: 50% bonus first year depreciation for most new machinery, equipment and software; an extraordinarily high $250,000 expensing limitation; the research tax credit; the five-year writeoff for most farm equipment; and the 15-year writeoff for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements. Finally, without Congressional “extender” legislation (which has come at the eleventh hour for several years), alternative minimum tax (AMT) exemption amounts for individuals are scheduled to drop drastically next year, and most nonrefundable personal credits won’t be available to offset the AMT.

High-income-earners have other factors to keep in mind when mapping out year-end plans. Many observers expect top tax rates on ordinary income to increase after 2010, making long-term deferral of income less appealing. Long-term capital gains rates could go up as well, so it may pay for some to take large profits this year instead of a few years down the road. On the other hand, the solid good news high-income-earners have to look forward to next year is that there no longer will be an income based reduction of most itemized deductions, nor will there be a phaseout of personal exemptions. Additionally, traditional IRA to Roth IRA conversions will be allowed regardless of a taxpayer’s income.

Roth IRA Rollovers

Mike Habib, EA

I am writing to tell you of an interesting new rollover opportunity that’s coming up in a few months. After 2009, you will be able to roll over amounts in qualified employer sponsored retirement plan accounts, such as 401(k)s and profit sharing plans, and regular IRAs, into Roth IRAs, regardless of your adjusted gross income (AGI). Currently, individuals with more than $100,000 of adjusted gross income as specially modified are barred from making such rollovers.