By FPA member John Comer, CFP®, Comer Consulting, LLC
Last Updated: December 7, 2009
Our current tax structure has a number of moving parts. Several changes were implemented this year to provide economic stimulus or relief. Also, many of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) revert back to 2001 levels in 2010 or 2011 unless Congress takes action. Those changes make this a good time to review your situation. You may find opportunities for you to capture or missteps for you to avoid at the end of this year and into 2010.
As you review your situation, it is a good idea to consider the tax impact for both 2009 and 2010. With so many changes, you do not want to reduce your taxes this year only to cross a tax bracket and increase your tax rate next year.
FPA member Tara Scottino, CFP®, Senior Vice President at Carter Advisory Services in Dallas, recommended a number of strategies you could evaluate in her November 6, 2009, blog post:
- Harvest investment losses to offset any capital gains taken this year
- Maximize retirement savings
- Use up flexible spending accounts
- Take advantage of energy credits
- Bunch itemized deductions into alternate years
- Use highly appreciated investments instead of cash for year-end donations
Find additional information on each of these strategies in Scottino's blog.
She also mentions several tax provisions that are only available through the end of this year unless Congress extends them. These include:
- Deduction for sales and excise tax paid on the first $49,500 for new vehicles purchased between 2/17/09 and 12/31/09
- Teachers' classroom expense deduction of $250
- Bonus depreciation and enhanced section 179 expensing for businesses
- Higher-education tuition deduction of $4,000, phased out at higher income levels
- Itemized sales tax deduction
- Tax-free unemployment compensation up to $2,400
- Charitable contributions made directly from an Individual Retirement Account (IRA)
- Consolidated Omnibus Budget Reconciliation Act (COBRA) premium assistance, if employment is terminated before 12/31/2009
- Additional standard deduction for real estate tax up to $500 for single filers and $1,000 for married filing jointly
- Alternative Minumum Tax (AMT) exemption increase
Just to illustrate how the tax laws are changing, one of the provisions that Scottino listed as expiring in 2009 has been extended by Congress. The first-time homebuyer credit for 10% of the purchase price up to $8,000 now expires April 30, 2010, and now provides some people who are trading up to with a credit also.
Reviewing your tax situation now can help you take advantage of provisions that have to be completed by December 31 and start out 2010 on the right foot. Despite the changes that may still be made in the tax laws, acting now where you can and identifying your options for the future can have a significant impact on the taxes you owe. Find a financial planner who can help you plan for taxes.
