YEAR-END TAX PLANNING
2009 is drawing to a close. The
sooner you address year-end tax planning issues, the
better. Whether you are approaching year-end planning
from an individual or business perspective, you can take
action to benefit from favorable tax law provisions.
IRA Charitable Donation Rule for 2009
Contributing to charity is a way to
benefit others and realize valuable tax benefits at the
same time. If you are an older IRA owner, you may be
eligible for a special charitable contribution rule that
extends through the end of 2009.
Under federal tax law, an IRA owner
age 70½ or older can directly transfer tax free up to
$100,000 from the IRA to an eligible charitable
organization in 2009. This planning option is eligible
to IRA owners regardless of whether they itemize their
To qualify, the funds must be
contributed directly by the IRA trustee to the eligible
charity. The transferred amounts are not taxable to the
IRA owner and no deduction is available for the amount
given to charity. We can help you determine if this
strategy would be beneficial to you in your planning.
Although the alternative minimum
tax (AMT) system was originally aimed at very wealthy
taxpayers, over recent years it has become a problem for
many more taxpayers. The AMT is designed to ensure that
taxpayers who use various deductions, credits, and
exclusions to reduce their regular tax liability still
pay a minimum amount of tax.
Deferring items that could trigger
the AMT to a later year may help you avoid the tax. You
might be able to preserve some deductions that are
allowed for regular tax purposes but not for AMT
purposes — such as state and local taxes and
miscellaneous itemized deductions — by deferring them
into a non-AMT year.
If it is economically feasible,
delaying the receipt of taxable income until after the
end of the year is a traditional tax planning technique
you may want to consider. By delaying income, you defer
your taxes on that income. Delaying income can also keep
you from losing tax breaks that are reduced or
eliminated at higher income levels and prevent you from
being pushed into a higher tax bracket in 2009.
Offset Gains and Losses
Capital losses generally are fully
deductible against capital gains. You can deduct excess
net capital losses against ordinary income of up to
$3,000 a year ($1,500 if married filing separately).
And, you can carry forward additional losses to later
tax years. A traditional planning strategy is to time
asset sales so your capital losses for the tax year
offset your capital gains.
Suppose, earlier in 2009, you sold investments that
resulted in a net capital gain of $10,000. Some other
investments you hold have unrealized losses of $10,000.
You might consider selling the assets on which you have
a loss and, thus, fully offset your earlier gains.
As you plan, you’ll want to pay
attention to the “wash-sale” rules. Under these rules,
if you sell securities at a loss and purchase
substantially identical securities within
30 days before or
after the sale, your loss will be disallowed.
However, for 2009, you may find
yourself in a situation opposite to the “normal” offset
scenario described above. Many securities, after
suffering a substantial downturn in late 2008 and early
2009, rallied significantly from their lows to current
higher levels. If you were fortunate enough to have
purchased securities near the market’s bottom, you may
have significant unrealized capital gains.
If you realized net capital losses
earlier this year (and/or have a net capital loss
carryover from last year), a possible tax planning
strategy is to sell some winners by year end so that the
gains can be offset by your earlier losses. That way,
you can take full tax advantage of your losses this
year. But what if you want to retain those winning
securities going forward? Just buy them back immediately
after selling them. The
wash sale rules don’t apply to securities you sell at a
gain. (Of course, additional broker commissions would be
incurred on the repurchases.)
“Bonus” First Year
Business taxpayers must generally
recover the cost of assets used in a trade or business
through annual depreciation deductions. The tax law
enables businesses to significantly increase their first
year depreciation deduction by providing a limited
opportunity for “bonus” first year depreciation (50%)
under the modified accelerated cost recovery system
(MACRS) rules. The American Recovery and Reinvestment
Tax Act of 2009 extended this provision for favorable
first year depreciation deduction for property placed in
service in 2009.
Section 179 Expensing
Under Section 179 of the Internal
Revenue Code, smaller businesses can take advantage of
an election to write off the cost of many types of
otherwise depreciable assets in the year they are
acquired and placed in service (limits apply).
For qualifying property placed in
service in taxable years beginning in 2009, there is a
$250,000 maximum Section 179 deduction. This deduction
maximum is reduced to the extent the cost of qualifying
property placed in service exceeds $800,000.
Need More Information?
If you have questions about these
or any other year-end tax planning strategies for 2009,
please let us know. We are here to help.