Year-End Tax Planning

Being proactive eliminates surprises and optimizes results

A few thoughts from Steve Levitt, shareholder with emphasis on taxation

As we approach the final quarter of 2009, it is time to consider year-end tax planning strategies. While tax planning is a year-round measure, it is a good idea to summarize your tax position before year-end.  Doing so allows you to:

1. Understand your tax obligations so you can plan for upcoming amounts due
2. Consider final year-end action steps

Also, many of our clients now face the dreaded alternative minimum tax (“AMT”). With some planning and timing of certain deductions, you may be able to minimize the AMT.

Here are a few things to consider before year-end:

• For 2009 only, the required minimum distribution rules for retirement plan and IRA withdrawals have been waived. So, if you haven’t yet taken your normal distribution and are in a tax-paying situation, consider pushing some or all of it to the future to save some 2009 income tax. With a little luck, you may also see the value of your holdings increase before you have to take it out.
• Review your investment portfolio and consider some year-end moves. The challenge facing many investors is dealing with losses due to the economic downturn. Maybe you have an appreciated stock you’ve been thinking about selling to diversify your portfolio but didn’t want to incur the tax cost – – now is the time to reconsider and offset the gain with losses. Maybe you have some realized gains from transactions and want to avoid the tax – – now is the time to consider realizing some of those paper losses.
• Consider accelerating the purchase of depreciable business property this year to take advantage of higher federal tax depreciation deductions that expire at the end of 2009. Unless Congress acts quickly, tax breaks for “bonus” depreciation, higher automobile depreciation, and higher expensing amounts allowed for property purchases will decrease significantly in 2010.
• Consider gifts to family members to take advantage of the annual gift tax exclusion. Gifts decrease your taxable estate and allow you to share the benefit with your family while you are here to see them enjoy it.
• If you are one of the few with appreciated securities without capital losses, consider a charitable gift. Instead of donating cash, consider donating appreciated stock held more than a year allowing you to deduct the current value and avoid capital gains tax. Many charities are hurting and can use your gifts now more than ever.

As always, these are general ideas and you should consult with us about your situation and the specific tax rules that apply.