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November 4, 2010
YEAR END TAX PLANNING
Normally, people look at what they can do in the last few months of the year to minimize their income taxes. This year is a little tougher than most, because of the impending expiration of the Bush tax cuts.
Congress is not really helping us out. Most of the tax cuts are set to expire on December 31, 2010. The House of Representatives voted to renew the tax cuts, but the Senate has not followed them. The estimated cost to the government to keep the tax cuts is estimated at as much as $30 billion. It seems unlikely that any legislation will be passed until 2011.
Some tax cuts have already expired. The deduction for state and local sales taxes, tuition expenses and being able to make charitable deductions directly from your IRA expired on December 31, 2009. Families with qualifying children will see the $1,000 credit drop to $500 for 2011. The “Making Work Pay” credit of $400 for individuals, $800 for married couples, is set to expire at the end of 2010.
The $1,500 energy credit available for making your house more energy efficient ends on December 31, 2010. So, if you haven’t taken advantage of this, you have a couple more months. The credit was available for 2009 and 2010. If you received the maximum credit last year on your 2009 return, you are not eligible for an additional credit.
Individuals who are over age 70 ˝ on December 31 should be sure to take the required minimum distribution from their retirement plans. Failure to take the required minimum distribution results in a 50% tax.
PLANNING FOR DEDUCTIONS – A strategy used by some individuals for planning for deductions is to group your expenses in one tax year. An example is medical expenses. If you felt that you were going to have major dental work in 2011, you might wait to buy those new eyeglasses or hearing aids and try and pay all of your medical expenses in one year. Since medical expenses are deductible to the extent that they exceed 7 ˝ % of your income, grouping them together gives you a better shot at actually getting to deduct them.
PLANNING FOR INCOME – The general rule is that the longer you can delay paying taxes, the better. But this year, some people believe that tax rates will be rising. If rates rise significantly next year, a good strategy might be to increase your income this year. Many retired people can control the amount of their income by deciding how much to take out of their retirement funds.
CAPITAL GAINS – For those in the 10% and 15% tax brackets, there is no tax on capital gains for the rest of 2009. For everyone else, the maximum capital gain rate is 15% in 2009. If Congress fails to extend the tax cuts, rates could double next year. So, for those of you who have investments that have increased in value, 2009 might be a good year to sell.
FILING DEADLINES – Normally your income tax return is due on April 15, however, this year Emancipation Day, a holiday recognized in Washington DC, falls on Saturday, the 16th, and will be observed on Friday the 15th. This means that the due date for your federal income tax return will be Monday the 18th. In Massachusetts, the 18th is Patriot’s day, a legal holiday in the Commonwealth, so that means your Massachusetts income tax return is due on the 19th of April.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves as the President of the Friends of the Saugus Senior Center and is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions, please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org