2008 Year-end Tax Planning for Individuals
TRADITIONAL TECHNIQUES
Income shifting. One of the most fundamental year-end tax planning techniques involves accelerating deductible expenses in the income of 2008 and the postponement, if financially possible, in 2009. With the possibility of changes in the tax brackets after the elections, the postponement or acceleration issue is further complicated. Delaying the income tax to defer taxes. Delaying the income tax prevents him from losing lucrative tax breaks that can be reduced or eliminated altogether as your income level that rises and propels them into a higher tax bracket.
With less than two months until the end of the year, you can probably anticipate with reasonable certainty that the income and deductions are to report on its 2008 tax return. It may also be able to predict with relative accuracy what your income and expenses during the first months of 2009 are included. The ability to measure its income and expenditure for 2008 and 2009 offers a golden opportunity to shift income or expenses in a year or another, depending on what is going to minimize their taxes in general.
Change in income, however, is not always just a question of delaying the receipt of funds. Tax rules may require recognition of certain types of income when they have earned the right to receive, even if you have the delay in payment. We can help you navigate and recognize the differences.
Deduction management. Essential requires tax planning exercise will determine whether the standard deduction, or if you itemize their deductions. Consider “group” deductible expenses in a year or whether the deduction may be taken in a year or if the adjusted gross income limits for medical (7.5 percent) or miscellaneous itemized deductions (2 percent ) can be more easily overcome.
Even if you know you will itemize deductions, accelerate or defer them is often a matter of determining their tax bracket for the end of the year and probably next year in order to maximize its value after tax. Or you will not be paying alternative minimum tax is another factor. Sometimes planning is as simple as your state estimated tax payment of taxes or real estate in one year or another, sometimes, is a matter of making certain the right to collect evidence and follow the appropriate time to be entitled to a deduction in one year or another. Once again, we can help.
Portfolio time. The end of the year is the right time to consider their investments (winners and losers in the course of the year) and take the necessary steps to minimize their income and capital gains to maximize the benefit of any capital losses. Especially this year, when the stock market had its rollercoaster ride, its portfolio of collection records for the whole year can make a difference not only in what you can buy or sell in November and December, but the estimated tax will to pay (or pay) for the fourth quarter of 2008. Long-term capital losses can be used to fully offset long-term capital gains. Losses that exceed the gains can also be used to offset up to $ 3000 in revenue (or $ 1500 for a married couple filing separately). The strategy in the short term gains and losses follows a similar game plan, although at times the coordination of the two has a special care. Unlike over-trading losses that can be carried back for two years for a refund immediately in many cases, one person, unfortunately, net capital losses can only be carried forward.
Retirement plans. Year-end planning for 2008 also includes maximizing annual contributions to their retirement plan accounts from a maximum of one year can not be added to next year if not taken in time. While contributions to IRAs can be applied retroactively if it is done before the deadline, an election postponement of the individual as an employee contribution to a qualified plan (such as a 401 (k)) must be done before the end the calendar year.
Maximize contributions to your retirement plan (or plans) before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deduction for medical and other deductions subject to adjusted gross income floors.
Gift. Slow and steady of planning through an annual gift can produce dramatic results. Before the end of the year 2008, you can transfer up to $ 12,000 per person annual exclusion as a gift. Married couples can gift $ 24,000 per person to “split” their gifts. In 2009, the annual exclusion is $ 13,000 ($ 26,000 for couples). The warnings are: (i) the Tennessee gift tax laws are not identical to federal law to seek advice if you please give more than $ 3,000 to anyone who is not their parent or a lineal descendant, and (ii) sharing of gifts requires submission of gift tax returns, so please let your tax advisor whether LBMC give more than $ 12,000 to anyone.
NEW OPPORTUNITIES
AMT patch. The Law on Emergency Economic Stabilization 2008 (EESA) includes among its many provisions called alternative minimum tax (AMT) “patch.” For fiscal year 2008, the AMT exemption amounts were raised again in an attempt to isolate the majority of middle-income taxpayers from the reach of the AMT. Or do not pay AMT can be determined only through a fiscal year-end projection.
Revenue for the forgiveness of mortgage debt. The principal-residence homeowners who have part of their mortgage debt forgiven as part of a workout or exclusion have been spared having to pay income tax on income forgiven. This treatment has been extended until 2012. Deduction for state and local sales taxes. Despite being one of the most popular tax deduction for state and local sales taxes is not permanent and is set to expire at the end of 2007. Under this deduction, taxpayers who itemize deductions the option of claiming either state and local income taxes or state and local general sales taxes. The Law on Emergency Economic Stabilization 2008 (EESA) extended this deduction for 2008 and 2009. Care is required to maximize this deduction in 2008.
Tuition and fees deduction. Taxpayers can continue to deduct qualifying tuition and fees paid in 2008 that are required for student enrollment or attendance at a post-secondary school. Tuition and fees deduction is an above-the-line depreciation, depending on adjusted gross income, can reduce taxable income up to $ 4000. Above the line deduction is often more valuable than the hope of taking a life of learning and education credit. Because this deduction has also been extended for 2009, deciding that an upcoming fiscal year tuition can help maximize your deductions and general education credits.
Tax-free IRA donations. The EESA extends until 31 December 2009, the possibility that certain taxpayers age 70 1 / 2 or older to make tax-free distributions from IRAs for charitable purposes. This contribution may include any minimum distribution which, otherwise, the taxpayer is obliged to take.
Before Sale Insurance Demutualized stock. If you sell shares in an insurance company that has received as a result of the demutualization of the company, you may be eligible for a partial refund of taxes under a tax case decided recently. Although the IRS can appeal the decision against it, its ability to request a refund depends on the timely assertion of his right to a refund. If you have sold stock demutualized since January 1st 2005, please contact us to determine what to do to preserve its claim.
Residential energy property. The high cost of energy is encouraging many people to make energy efficiency improvements to their homes. If you are contemplating the installation of energy efficient doors and windows, water heaters or other items in 2008, you may want to wait until 2009.
Several years ago, Congress created a tax credit for installing energy efficient doors and windows, water heaters and similar items. The non-refundable life could go as high as $ 500. However, the credit expired at the end of 2007. Surprisingly, the EESA restores credit, but not for 2008. The new law restores the credit for the years 2009 through 2016. The EESA also expands the credit to include certain stoves that use renewable fuel derived from the plant together with other improvements, so that while the credit is not available for 2008, the extension of credit to the year 2009 may merit sentence expected.
Another incentive in the year 2008 is available for certain energy efficiency improvements. Owned solar electric, wind energy, small property and some heat pumps can qualify for housing alternative energy tax credit. You can also use alternative energy residential credit against AMT liability in 2008.
Holiday home conversions. Profits from the sale of a principal residence is attributable to periods of “nonqualified use” can no longer be excluded from the benefit of the taxpayer in his account of the sale. One technique that has been used by many homeowners on vacation is the time to convert into a second home a primary residence before its sale and claim the full $ 250,000 principal residence exclusion ($ 500,000 for joint filers) on the gain. Due to a gap in the provision closing 2008 Housing Assistance Tax Act on the conversion after the December 31, 2008, the party can not acquire housing due recognition after 2008.
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With the complexity of tax law, understanding that planning for the tax provisions to include in its year-end tax planning strategy can be a daunting task. While it is hoped this communication gives you a head in a number of strategies that you might like to use the end of the year, there are many other techniques that can be used depending on an individual contributor to the circumstances. For a more detailed plan that can be customized to their particular circumstances, do not hesitate to give your tax advisor LBMC a call.