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November 2010
 
Now that the leaves have changed colors and are falling off the trees it is time again for year-end tax planning. Tax planning should not be just a year-end event, but an all year plan.   We all know time passes quickly (I think it gets faster each year), and suddenly it is November and the planning happens at year-end yet again.
 
My usual tax planning advice for the last few years at year-end is not a sound plan for calendar year 2010. Typically as the year winds down one should defer income and accelerate deductions. Calendar year 2010 is not a typical year. The Bush tax cuts will expire at the end of 2010. What this means is that the tax rates will return to their pre-Bush levels. Even under a proposal by the Obama administration, while the “middle income” brackets stay at the 2010 levels, the two top brackets, currently at 33% and 35% will increase to 36% and 39.6% in 2011. Additionally, if Congress does not act before year end (which is doubtful as they usually go home for Thanksgiving and Christmas) the capital gains rate will rise to 20% from the current 15%. And dividends will be taxed as ordinary income, no longer eligible for a maximum 15% tax rate.
 
The strategy for year-end tax planning in 2010 is to accelerate income if possible to pay tax at the lower 2010 tax rates.  Here are some specific ways to take advantage of the 2010 tax rates:
 
·         Convert your traditional IRA to a Roth IRA. Consider electing to claim all the income in 2010 rather than
      spreading the tax burden over two years. Be careful with this decision as you should use non-IRA assets to pay the tax, keeping your IRA assets intact.
 
·         Owners of C corporations should consider taking a dividend from available earnings and profits in calendar year 2010 to take advantage of the 15% dividend tax rate that is scheduled to expire December 31, 2010. 
 
·         If you have unrealized capital gains and you were planning to sell these assets during 2011, consider accelerating the sale to 2010 to take advantage of the 15% capital gains tax rate that is scheduled to expire December 31, 2010.
 
 
Have a happy, healthy and safe holiday season. 
 
Gary Topple, CPA has more than 33 years of tax, accounting and auditing experience. 
He is a partner in the CPA firm G. R. Reid Associates, LLP. 
 
 

gtopple@grrcpas.com
181 Main Street Huntington, NY  11743
631-425-1800 extension 306 Fax 631-425-4656

 
The information contained herein is intended to afford general guidelines on matters of taxation.  Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Unless specifically stated otherwise, the written advice in this article or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Readers are encouraged to consult directly with their professional advisors or a professional advisor at G.R. Reid Associates, LLP for advice concerning specific matters