Accounting News and Notes

 2009 Year-End Tax Planning

The end of the year is a good time to focus on tax planning and assess your financial status and goals. These strategies may help minimize your tax bill.

Thinking about your taxes will almost always give you a headache, especially around the holidays. But staying on top of your finances as the year comes to a close can mean the difference between owing thousands of dollars in federal taxes and receiving a sizable check from the government in the spring.

Martin Scoll, Vice President of Life Event Services for Wachovia Securities, says it is paramount to start preparing as early as possible. “Good tax preparation and planning starts on January 1,” he says. “Don’t wait until December to start dealing with your year-end planning. Reviewing your finances and giving some thought to your taxes in October and November will not only keep you ahead of the game — it will also likely save you money.”

Here are some tax-efficient strategies to consider as the end of the year approaches.

Review Your Investments

Real Estate. For many people, a home is their best investment. Not only does a home typically rise in value over the long term — it also provides one of the best tax advantages out there, since the interest paid on a mortgage is generally deductible from your federal taxable income.

Stocks and Mutual Funds. Scoll says it is important to give your entire portfolio a review as the year comes to an end. If you have taken a loss from some stocks this year, it might be wise to sell them off before the end of December. Losses in equity markets can be used to offset any capital gains on stocks that have been realized during the year, and any excess losses can offset up to $3,000 of ordinary income, with any remainder carried forward for use in future years.

If you do decide to sell off stocks, make sure to do it before December31, the last day of the year the stock market is open. Getting stuck holding stocks with losses will not decrease your tax bill.

Also, if you are expecting capital gain to be returned from a hedge fund in which you are invested, try to defer that event until the beginning of next year, unless you think the rates will be substantially higher next year

Retirement. If you are receiving distributions from your qualified plan, you can roll over the entire balance or distributions in excess of any RMD (required minimum distribution) into a traditional IRA. If you do this custodian to custodian or within 60 days (subject to limitations), you will not have to pay taxes on those distributions. Be sure to speak with your Wachovia Securities Financial Advisor before setting up the IRA account.

Give Away Money, Increase Your Deduction

Often people donate money in the fourth quarter to increase their tax deductions. “Philanthropy is definitely something to consider,” says Scoll. “But there are limitations to how much you can give to charity and use the deduction.” You should talk to both your tax advisor and your Financial Advisor before embarking on a philanthropic giving plan.

There are also other kinds of gifts you can make to reduce taxes for long-term estate planning. First, you can give up to $12,000 per donor per recipient to family members and others each year without triggering gift taxes. You can also give to your children’s or grandchildren’s education through 529 savings plans. You can gift $12,000 a year to a 529 plan tax-free — or better yet, take advantage of a law that allows you to give a single contribution, covering five years, to a 529 plan. That means you can give a maximum of $60,000 (five years of gifting) per donor per recipient tax-free in one year — and still be able to move that money between heirs’ education funds.

Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 plan..

Additional Tax-Saving Tips

In addition to reviewing your investments, there are other strategies that can help save you money come tax time.

Scoll believes it is always cost-effective to hire a good accountant. “Very often a good tax preparer is going to save you more money than he is going to cost you,” Scoll says. “It pays to have a smart professional help you prepare your taxes.”

While spending some time at year-end preparing your taxes is a smart idea, it’s also a good time to assess your financial status and goals for next year — so that when the end of next year rolls around, your investment and tax planning will already be off to a strong start.

Be Sure to Consider:

• Making the necessary adjustments in your portfolio to help maximize your tax savings this year.
• How you should approach and adjust your IRA to avoid paying unnecessary taxes.
• Gifting money to family members or your children’s education fund to reduce your future estate taxes.

Withdrawals are subject to ordinary income tax and may be subject to a federal 10-percent penalty if taken prior to age 59½.

This article was written by Wachovia Securities and provided courtesy of The Strong Gaddy Lilly Wealth Management Group in Gainesville, GA. You can contact Mr. Michael Gaddy at 770-532-6361.

Related posts:

1. Plan Now for Deductions, Deferrals, & Capital Gains to Reduce Your 2009 Taxes
2. Duluth CPA Firm Advises on 2009 Year End Tax Planning
3. Nervous 401(k) Investors Shouldn’t Bail Out
4. Atlanta CPA Advises on 2009 Year End Tax Planning Ideas for You and Your Business: Keep Your Tax Bill as Low as Legally Possible
5. Year End Tax Planning…What You Can do Now to Save Thousands

This entry was posted on Tuesday, February 17th, 2009 at 11:31 am and is filed under Atlanta Corporate Income Tax & S Corporation Return, Personal Income Taxes, Tax News...For Georgia and Nationally/the IRS.
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