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The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| Last Minute Tax Ideas (Give Yourself the Gift of Tax Savings) |
Here are 15 different tax-saving ideas you can use to reduce your 2009 income taxes.
That’s one for each of the 12 days of Christmas, plus 3 extra! But hurry - most of these require
action before December 31, 2009 in order for you to benefit.
Before we review the 2009 tax saving strategies, let’s first look at one contrary idea – to actually
accelerate income into 2009. Why do this? Many taxpayers have considered rolling their
traditional IRA accounts into a Roth IRA in 2010. You have the option of paying the tax on the
rollover in 2011 and 2012, or pay it all in 2010. With the talk of how to fund universal health care
and a proposed “war tax”, many taxpayers are considering paying their IRA rollover tax in 2010,
rather than to roll the dice on higher tax rates after 2010. If you are one of these, you may want
to accelerate income into 2009, rather than have it taxed in 2010 when your IRA rollover
may push you into higher tax brackets.
Now for the tax saving ideas:
• Maximize your 401(k) contribution (particularly if you receive a big year-end bonus).
The maximum deferral is $16,500, plus an additional $5,500 for those age 50 and above.
• Set up a medical savings account if you are self-employed to pay for medical
expenses with pre-tax dollars. You can fund up to $5,950 into the plan for 2009 and get a tax
deduction for it. Unlike an employer-sponsored flexible spending account, the amount contributed
does not have to be spent by the end of the year.
• Look at taking stock losses to offset capital gains. Don’t forget about the capital
gains that may be taxable to you through mutual fund capital gains dividends. Your broker or
investment advisor should be able to provide you with a projection of your capital gains dividends
for 2009.
• Postpone the receipt of income to 2010 if you expect to remain in the same or a
lower tax bracket in 2010. Employees might request that bonuses or commissions be paid on
the first check for 2010. Cash-basis taxpayers may want to hold off on further invoicing so that
less cash is collected in the last weeks of 2009.
• Cash-basis taxpayers should consider accelerating deduction into 2009. Pay all
outstanding invoices before year-end; consider prepaying certain accounts where possible. Short
on cash? You can charge the expenses to a credit card and take the deduction; the credit card
balance does not have to be paid off to claim the expense.
• If you are self-employed, open a SEP, SIMPLE, or self-employed 401(k) retirement
account before the end of the year. Contributions to the plan do not have to be made until the
due date of your income tax return, but the plan must be in place by December 21, 2009.
• If you are looking to claim losses from an S corporation or partnership, make sure
you have sufficient basis to deduct the loss. You may need to make a loan or additional capital
contribution to the entity before year-end in order to have enough basis to claim the loss.
• Consider paying your last quarter state and local income tax estimates in 2009,
rather than waiting until January 15, 2010. But, if you will be subject to AMT tax in 2009, you will
not receive a benefit for paying these in 2009. Miscellaneous itemized deductions may also follow
the same advice. I suggest contacting my office to determine whether the estimate prepayment
option will benefit you.
• Increase your year-end Federal withholding to avoid any underpayment penalties
because of other income. You can always go back to your former withholding rates in 2010.
• Purchase a car before year-end to get the sales tax deduction (it expires in 2010).
• Consider making energy-efficiency improvements before year-end to claim the
credit for energy-efficient windows, doors, insulation, roofs, heat pumps, solar systems, etc.
• You may want to “bunch” certain expenses subject to floor amounts all in one year to
get a tax benefit. These include medical expenses and miscellaneous itemized deductions. The
strategy can also be used for other itemized deductions to allow you to claim a higher deduction
in one year than would be possible under the standard deduction.
• Business owners can expense up to $250,000 in asset purchases in 2009, as well as
claim 50% bonus first-year depreciation. Congress is considering extending these limits to
2010, but it has not yet passed.
• If you are over age 70-1/2, have an IRA account, and want to make charitable gifts, you
can make up to $100,00 in contributions from your IRA and not have those distributions
considered taxable income. This may help you to reduce the amount of Social Security
benefits subject to tax, as well as lower taxable income that may impact the phase-out of certain
itemized deductions and exemptions.
• If you need to increase your Federal withholding to avoid underpayment
penalties but don’t have sufficient salary to make the withholding, consider a withdrawal from
your IRA or 401(k) account. There is a mandatory 20% Federal tax withheld on early
distributions, which will count as though you made the withholding evenly throughout the year.
Then, repay the plan within 60 days to avoid the distribution becoming taxable to you.
*This is certainly not an all-inclusive list of possible strategies. And, in the interest of space, all
the ideas are not fully explained, and some may have exceptions and other provisions that may
cause them to not be appropriate for you. Please give us a call to explore and discuss any of
these or other ideas in more detail based on your specific tax situation.
That’s one for each of the 12 days of Christmas, plus 3 extra! But hurry - most of these require
action before December 31, 2009 in order for you to benefit.
Before we review the 2009 tax saving strategies, let’s first look at one contrary idea – to actually
accelerate income into 2009. Why do this? Many taxpayers have considered rolling their
traditional IRA accounts into a Roth IRA in 2010. You have the option of paying the tax on the
rollover in 2011 and 2012, or pay it all in 2010. With the talk of how to fund universal health care
and a proposed “war tax”, many taxpayers are considering paying their IRA rollover tax in 2010,
rather than to roll the dice on higher tax rates after 2010. If you are one of these, you may want
to accelerate income into 2009, rather than have it taxed in 2010 when your IRA rollover
may push you into higher tax brackets.
Now for the tax saving ideas:
• Maximize your 401(k) contribution (particularly if you receive a big year-end bonus).
The maximum deferral is $16,500, plus an additional $5,500 for those age 50 and above.
• Set up a medical savings account if you are self-employed to pay for medical
expenses with pre-tax dollars. You can fund up to $5,950 into the plan for 2009 and get a tax
deduction for it. Unlike an employer-sponsored flexible spending account, the amount contributed
does not have to be spent by the end of the year.
• Look at taking stock losses to offset capital gains. Don’t forget about the capital
gains that may be taxable to you through mutual fund capital gains dividends. Your broker or
investment advisor should be able to provide you with a projection of your capital gains dividends
for 2009.
• Postpone the receipt of income to 2010 if you expect to remain in the same or a
lower tax bracket in 2010. Employees might request that bonuses or commissions be paid on
the first check for 2010. Cash-basis taxpayers may want to hold off on further invoicing so that
less cash is collected in the last weeks of 2009.
• Cash-basis taxpayers should consider accelerating deduction into 2009. Pay all
outstanding invoices before year-end; consider prepaying certain accounts where possible. Short
on cash? You can charge the expenses to a credit card and take the deduction; the credit card
balance does not have to be paid off to claim the expense.
• If you are self-employed, open a SEP, SIMPLE, or self-employed 401(k) retirement
account before the end of the year. Contributions to the plan do not have to be made until the
due date of your income tax return, but the plan must be in place by December 21, 2009.
• If you are looking to claim losses from an S corporation or partnership, make sure
you have sufficient basis to deduct the loss. You may need to make a loan or additional capital
contribution to the entity before year-end in order to have enough basis to claim the loss.
• Consider paying your last quarter state and local income tax estimates in 2009,
rather than waiting until January 15, 2010. But, if you will be subject to AMT tax in 2009, you will
not receive a benefit for paying these in 2009. Miscellaneous itemized deductions may also follow
the same advice. I suggest contacting my office to determine whether the estimate prepayment
option will benefit you.
• Increase your year-end Federal withholding to avoid any underpayment penalties
because of other income. You can always go back to your former withholding rates in 2010.
• Purchase a car before year-end to get the sales tax deduction (it expires in 2010).
• Consider making energy-efficiency improvements before year-end to claim the
credit for energy-efficient windows, doors, insulation, roofs, heat pumps, solar systems, etc.
• You may want to “bunch” certain expenses subject to floor amounts all in one year to
get a tax benefit. These include medical expenses and miscellaneous itemized deductions. The
strategy can also be used for other itemized deductions to allow you to claim a higher deduction
in one year than would be possible under the standard deduction.
• Business owners can expense up to $250,000 in asset purchases in 2009, as well as
claim 50% bonus first-year depreciation. Congress is considering extending these limits to
2010, but it has not yet passed.
• If you are over age 70-1/2, have an IRA account, and want to make charitable gifts, you
can make up to $100,00 in contributions from your IRA and not have those distributions
considered taxable income. This may help you to reduce the amount of Social Security
benefits subject to tax, as well as lower taxable income that may impact the phase-out of certain
itemized deductions and exemptions.
• If you need to increase your Federal withholding to avoid underpayment
penalties but don’t have sufficient salary to make the withholding, consider a withdrawal from
your IRA or 401(k) account. There is a mandatory 20% Federal tax withheld on early
distributions, which will count as though you made the withholding evenly throughout the year.
Then, repay the plan within 60 days to avoid the distribution becoming taxable to you.
*This is certainly not an all-inclusive list of possible strategies. And, in the interest of space, all
the ideas are not fully explained, and some may have exceptions and other provisions that may
cause them to not be appropriate for you. Please give us a call to explore and discuss any of
these or other ideas in more detail based on your specific tax situation.
DECEMBER 8, 2009 NEWSLETTER ARTICLE
| Robert A. Romako, CPA 220 Haldeman Avenue New Cumberland, PA 717.774.3047 |