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Last-Minute Tax Tips


As the end of the calendar year approaches, there are a number of actions you can take to minimize your tax liability for 2009.


Start by reviewing your income, expenses and potential deductions for the year: Take a look at your 2008 return and think about what has changed and how these changes could impact your tax situation.


Review your investment portfolio. If net capital gains are high, consider taking losses to offset some of the capital gains income.


Defer income. Unless you have reason to believe that next year you may end up in a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, you might want to consider sending out your last billings or invoices late in the month or after the first of January.


Use up your flex spending plan. If you have a flexible spending plan through your employer where you have set aside tax-free earnings to cover medical and dental expenses, you need to use it up. Make appointments now and buy necessary prescriptions or medical supplies that are covered by the plan.


Make your January mortgage payment before December 31. This allows you to take an additional deduction for interest paid. When you receive your form 1098 from your lender, make sure they included this final payment or have them issue a corrected one.


Be careful about buying an actively managed mutual fund. The later it gets in the year, the more likely it is that you will be credited with capital gains distributions that were already effectively priced in when you made the purchase. This would amount to a form of double-taxation that can be avoided by postponing your settlement date until after the beginning of the year.


Teachers in grades K-12 can still take up to a $250 deduction on materials purchased for instructional purposes.


If you are self-employed, stock up on equipment and supplies. Under Section 179 the self-employed can deduct up to $250,000 of the cost of qualified capital equipment purchases. In 2010, this will go down to $134,000, and in 2011 to $25,000.


Prepay your property, state and local taxes if you itemize your deductions. These may not deductible if you are subject to the Alternative Minimum Tax, however.


Make gifts or donations. You and your spouse are each allowed to give up to $13,000 (for a total of $26,000) to as many people as you would like without having to pay gift taxes. In addition, you can only claim a tax deduction for charitable contributions you make before January 1. If your donation is worth more than $250, make sure to get a receipt from the organization to which you are donating. If you are donating goods or property, make an itemized list with each item's fair market value. Charities and non-profits have been particularly hard hit by the economic downturn, and your contributions will be deeply appreciated.


These are all steps you can take before the end of the calendar year. There are other tax-savings steps you can take up to the normal filing date (April 15 for most of you), such as making IRA and HSA contributions, and for those of you who experienced a severe drop in income in 2009 and anticipate better times to come, this might be a good time to consider making a Roth IRA conversion.


If you have any questions please feel free to call. Also, my offer of a free no-obligation half-hour appointment to review your tax situation and assess your current professional needs still stands. Contact me by email or telephone before January 1.


And to all of you, season's greetings and all the best to you and your families in 2010.




Year-end tax planning

Last week I attended an annual conference reviewing major developments in federal and California tax laws and procedures. For a variety of reasons, these are among the most sweeping in memory, and will probably affect all of you in some fashion. When you throw in the effects of the recession and uncertainties surrounding proposed health care legislation, tax planning is more critical this year than ever.

Some highlights:

  • Both the IRS and the state of California made changes to the withholding tables in 2009. As a consequence, many of you will end up with smaller refunds or actually owe money this coming April.
  • Increased tax benefits and credits are available for education expenses and investments in solar and energy-saving improvements.
  • Taxes on COBRA and unemployment benefits have increased
  • California is offering a new small business hiring credit.

Normally, it is considered good practice to push income into the new year and take deductions early (the reasoning being that taxes deferred are taxes saved). This strategy may no longer be operative given the near-certainty that federal and state rates will be increasing over the next several years.

Also, job changes (including severance packages, unemployment benefits, pay cuts and early retirement), foreclosures and investment losses present a new set of challenges. We need to make sure your tax bill is minimized for each of these circumstances.

For most taxpayers with salary income reported on form W2, recalibrating withholding exemptions will be necessary to avoid unpleasant surprises. If you fall into any of the following categories, you may want to consider adjusting your withholding allowances:

  • have children or other dependents;
  • have more than one job;
  • are married and you both work;
  • received a COBRA subsidy;
  • receive a pension where taxes are withheld;
  • have or expect to have total income over $1 million;
  • owed taxes when you filed last year’s return and did not change your withholding at that time; and/or
  • got married, divorced or became widowed this year.

Even if your financial picture is particularly dire, a short tax planning session now could save a tax bill and penalties next year.

My offer of a free no-obligation half-hour appointment to review your tax situation and current professional needs still stands. Contact me by email or telephone to make your appointment before December 31.


Interesting article in Forbes...

"10 ways to audit-proof your return"

I should point out that while I don't necessarily endorse or agree with the author's contentions, I believe it's fair to say that this represents current conventional wisdom with respect to audit risks.


Let's get acquainted . . .

Limited time offer: Call or email today for a free half-hour no-obligation appointment to review your financial situation and current professional needs.

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