November 2009 Tax Tip:
Year-End Tax Planning Helpful Tips for Individuals
As the 2009 year is rapidly coming to a close, it is a good idea to take some time and evaluate some last minute year-end planning tips that may keep your hard earned money in your pocket instead of in the hands of the government. The constantly changing tax laws have made for some interesting opportunities in 2009 and it is important to keep in mind which tax benefits might be available to you. Consider evaluating your tax situation for at least a two year period with the objective of minimizing your tax liability for two years combined, rather than just the current year. In addition, taxpayers should keep in mind Alternative Minimum Tax (AMT) can affect their options in tax planning as well. A strategy may be great for regular tax purposes, but might just create or increase an AMT problem.
Individuals
- Make charitable gifts of appreciated stock (or if your stock has gone down in value, you could sell the stock, take the loss and then donate the money to charity)
- Maximize the benefit of the standard deduction by bunching deductions (especially unreimbursed employee business expenses and medical expenses) in every other year in order to itemize deductions in one year and take the standard deduction in the following year
- Make purchases of large items (ie. automobiles - some may even qualify for an alternative motor vehicle tax credit, boats, etc.) before the end of the year to take advantage of the expiring sales tax break
- Make energy efficient improvements to your principal residence for a credit of up to $1500 in federal income taxes (See previous Tax Tip for March)
Investments
- Produce capital losses by selling stock that may have dropped in value and/or working with your broker to sell the highest basis shares first (You are able to deduct capital losses up to the amount of any capital gains in the same year; as well as, up to a maximum of $3,000 against any other income and any remaining losses get carried forward indefinitely)
- Take advantage of the 0% capital gains rate on long-term capital gains and qualified dividends when the taxpayer's regular federal income tax rate is within the 10 to 15% bracket. If your income is too high to take advantage of that benefit, you might consider giving some appreciated stock to a loved one who can and they can sell it and take advantage of the 0% tax on the resulting long-term gains. (Be aware of the Kiddie Tax Rules!)
Office Related
- Consider maximizing your contributions to 401(k) plans especially if your employer makes matching contributions - it's like "free money!"
- Flexible Spending Accounts (FSAs) where you take tax-free withdrawals to reimburse yourself for out-of-pocket medical, dental and qualifying child care expenses. Be careful though - FSAs are
use-it or lose-it" accounts.
- consider bumping up your Federal income taxes withheld from your paychecks from now through the end of the year to decrease the amount owed with your return and to minimize any penalties.
Businesses
- Consider paying a dividend in 2009 to convert some of your C corporation wealth into cash and take advantage of the 15% maximum federal tax rate on dividends in 2009.
- Consider purchasing big ticket items (ie. Equipment and software) before the end of the year. The maximum §179 deduction for 2009 is at $250,000, but is reduced dollar for dollar to the extent that the company has purchased and placed into service property exceeding $800,000.
- Take 50% first year bonus depreciation for most new (not used!) equipment and software acquired and placed in service by December 31, 2009.
Questions?
If you would like more detailed information, please do not hesitate to contact us.
