“If it’s never our fault, we can’t take responsibility for it. If we can’t take responsibility for it, we’ll always be its victim.”
– Richard Bach
I trust you’re recovering from all the holiday sweets and family fun? My body might need a few weeks, probably!
Last week, I wrote a plea to make sure that you don’t let the year end without making some possible adjustments to THIS year’s situation–to ensure your tax bill is as low as possible. And we’ve been already contacted by folks who are looking for help.
I’ve put together a brief article on moves you CAN make, if you’re savvy and fast in the current week.
I’ve also got some interesting news items to pay attention to, but I’ll place those at the END of my post, as I know that some of my readers would rather leave all the tax items to us!
Now…to this week’s Strategy Note…some year-end tax moves to consider.
Let me know your thoughts…and, of course, if you’d like to talk this over with us we DO have a couple slots left! Call or email soon, though!
“Real World” Personal Strategy
Move Quickly To Secure Year-End Tax Savings
There are certain moves you can ALWAYS make which will help your tax bill at the end of the year, but this year there are some tax breaks that are specific to 2009 but which will require you to make big decisions quickly – like buying a new car. Others can be completed in a matter of minutes, whether it’s contributing to your children’s 529 college savings plan or making a donation to your favorite charity.
A few pertinent questions for you: Did you lose your job? Or do you expect to collect a larger paycheck next year?
Generally speaking, if you expect your income to drop next year, you should try to reduce this year’s bigger bite. Similarly, if you expect to land in a higher tax bracket next year, you might want to pay extra taxes now to ease the burden later.
My recommendation? Let’s avoid making a big gift to Uncle Sam in your name, come April 15th. Sound good?
Well, here’s a checklist of items to consider before you take out the champagne on New Year’s Eve.
BASIC MOVES: If you think your income will be lower next year or you expect to remain in the same tax bracket, you probably want to take as many deductions as you can in 2009, and defer any income that you can into 2010. The opposite applies, of course, if you expect to be in a higher tax bracket in 2010.
If you are looking for deductions, think about what tax-deductible payments are due early next year that can be paid now. For instance, you might pay your January mortgage payment right now. The mortgage interest is (still) deductible.
Likewise, if you are self-employed or retired and you make estimated state and local income tax payments each quarter, you can make the payment due Jan. 15 in December.
ABOUT THOSE CAPITAL “GAINS”: The majority of investors likely have plenty of investment losses left over from 2008 – and those can be used to offset any gains on an investment sold this year. But whether you’re selling an investment at a profit – or to generate a loss – just remember to pull the trigger by the end of the year.
If your investment losses exceed your gains, you can use the excess to offset up to $3,000 of ordinary income each year (or $1,500 for married individuals filing separately). Losses can be carried to future years until they are used up.
Long-term capital gains are currently taxed at 15 percent, though that is likely to rise to 20 percent, at least for high-income taxpayers, by 2011. It is also important to note that taxpayers in the lowest income tax brackets, of 10 and 15 percent, pay no capital gains taxes in 2009 and 2010, so selling investments at a loss would not provide additional tax savings.
TIME TO CONSIDER A NEW VEHICLE: If you are planning on buying a new car, truck or motorcycle, you may qualify for a federal tax break if you purchase it before Dec. 31. The break allows eligible taxpayers to deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price. But the amount of the tax break, which can be used whether you itemize deductions on your tax return or not, begins to phase out for individual taxpayers whose modified AGI is $125,000 to $135,000 and $250,000 to $260,000 for joint filers.
And, of course, some hybrid vehicle purchases still qualify for a credit of up to $3,400.
CHARITY: All donations, monetary or otherwise, must be made by the end of the year (and only individuals who itemize their deductions are eligible for a deduction). Donations of household goods or clothes must be in “good used condition,” and require a receipt from an organization detailing the items, unless you left the property in a drop box (if that’s the case, keep your own records). All donations worth more than $250 require a written receipt from the organization. Donations put on your credit card this year but paid next year are also deductible, by the way.
PERSONAL GIFTS: Individuals can give any number of people up to $13,000 each in 2009 without gift tax consequences. So if you want to maximize the amount you can give to, say, a relative who lost a job, you can send $13,000 now and $13,000 more next month.
MEDICAL EXPENSES: These can only be deducted – as an itemized deduction – if they exceed 7.5 percent of your adjusted gross income (10 percent if you’re subject to the A.M.T.). So if you’re near the threshold, consider buying eyeglasses or getting dental work … and paying for it before the year’s up.
And, as I’ve written previously, don’t forget that any money in flexible spending accounts must be spent before the end of the year (though some plans might have grace periods).
Now, to the interesting news items..
Good news for the economy
Looks like holiday sales were UP 3.6% by recent estimates. Perhaps it indicates a sign that consumers have more confidence (or it could be that they’re tiring of “recession behavior”). Whatever the reason, as usual I recommend that you focus mostly on YOUR situation…and what you can do to make 2010 your best year yet.
Bad news for small businesses…and wealthy individuals
New audit data out, here’s the skinny:
* Enforcement revenue up 50% from 2000
* Individual audit rate up 100% from 2000
* A millionaire is six times more likely to be audited than someone earning less than $200,000
* Business audit rate down 15% from 2000
* The only businesses with a higher audit rate in 2009 than 2000 are small businesses (< $10m assets). The audit rate of larger businesses (including those with over $250m of assets) is lower in 2009 than in 2000
I hope all this helps. To your family’s financial and emotional peace…