Year-End Tax Planning Tips

December 18, 2009
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With the holidays upon us, it’s time to do some planning that can help reduce your tax bill this year.
Contributing to your retirement plan is a fast and easy way to cut your taxes, while building your nest egg.  The federal limit for 401(k) contributions this year is $16,500 if you are under 50 years of age, or $22,000 if you are 50 years of age or older.  The limits will remain the same for 2010.  You should check with your employer to see if your employer has different contribution limits.  If your employer matches contributions, then you should try to contribute at least enough to receive the matching funds.  Contributions must be made on or before December 31, 2009.
A traditional or Roth IRA is another way to save for retirement and possibly reduce your taxes this year.  The maximum contribution to an IRA for 2009 is $5,000 for those under 50 years of age, and $6,000 for those 50 years of age or older; the same limits will be in place for 2010.  Your contributions to a traditional IRA may be deductible, depending on whether you are covered by a retirement plan at work and your adjusted gross income.  Your adjusted gross income may permit you to contribute to a Roth IRA.  For married couples filing jointly, Roth IRA eligibility phases out at modified adjusted gross incomes (AGI) from a range of $166,000 to $176,000.  For single filers the Roth IRA eligibility phases out at modified AGIs from $105,000 to $120,000.  These phase out ranges will remain the same in 2010.  If you do not qualify for a Roth IRA because your income is too high, then you may want to open or contribute to a nondeductible traditional IRA now, and convert it to a Roth IRA in 2010, when the income limits on conversions from traditional to Roth IRAs are scheduled to expire.  Your Roth IRA will continue to grow tax-free, and withdrawals may be tax-free if you follow the Roth IRA rules.  You have until April 15, 2010, to open and contribute to a traditional or Roth IRA.
For the self-employed, Simple IRA contributions for 2009 are $11,500 for those under 50 years of age, or $14,000 for those 50 years of age or older.  These limits remain the same in 2010.
Charitable giving has always been a source of deductions on your tax return.  You must keep good records that show the value of the items you are donating to charity.  If you donate a vehicle, then the value of the deduction will depend on what the charity receives when it sells the vehicle.  Taxpayers who are 70 ½ years of age or older may give away as much as $100,000 annually from their IRAs directly to qualified charities.  Such a contribution counts toward the required minimum distribution for the year, and it is called a “qualified charitable distribution.”  Taxpayers get an exclusion from their gross incomes for these qualified charitable distributions, although taxpayers may not take a charitable deduction for the contribution to charity.  This tax break currently will end after December 31, 2009.
There are several more traditional ways to reduce your taxes this year.  If you are fortunate enough to have gains on investment income, then now is the time to offset some of those gains with losses on the investments you have considered selling.  If you have no gains to offset, then you may use up to $3,000 of loss to reduce taxes on ordinary income, and carry forward the extra loss into future tax years.  With respect to your home, you may want to make your January mortgage payment in December and deduct the interest in 2009.  You may also be able to pay taxes, such as property taxes, that aren’t ordinarily due until 2010.  If you pay property taxes, but don’t file an itemized return, then you can claim a larger standard deduction; you can claim up to $500 of real property taxes paid, $1,000 for joint filers, on top of the standard deduction.
Before you use tax-saving strategies, be sure you consider the effect of the alternative minimum tax (AMT).  Congress raised the amount of income exempted from the AMT to $70,950 for married joint filers and $46,700 for singles.  This is a temporary fix, but will save more than 20 million taxpayers from paying the AMT this coming tax season.  If you have not yet been affected by the AMT, then this could be the year that it catches up with you if you are not careful.  Some accountants say strategies such as using home equity to cover credit card debt could push you into the higher tax calculations of the AMT.  Your accountant or you should run a quick calculation before moving forward with some of the tax-saving strategies.
Oast & Hook assists clients with integrated estate, tax, and financial plans to help provide optimum solutions to the many challenges clients face.

Ask Allie

O&H:  Allie, we’ve heard about another local office pet.  Please tell us about him.
Allie:   Sure!  Beau is a Golden Retriever and is the official greeter at The Box Outlet in Hampton.  Beau graduated from Intermediate Obedience Training and hopes to be a therapy dog some day.  His hobbies include going to work every day, greeting customers with hugs and kisses, chewing on paper and cardboard, and attempting to play with his ten year old cats.  Beau is working longer hours these days as he helps the customers get their holiday packages shipped.  Hmmm…. that sounds like a fun job…. I’d have to be careful though, I’m so curious I might end up in one of the packages and get sent to California for the holidays!  I hope all of our readers have a happy and safe holiday season.


The Alzheimer’s Association will be offering a Family Caregiver Education Series.  These programs will be held from 11:00 a.m. to 1:00 p.m. at the Bayside Library, 936 Independence Boulevard, Virginia Beach, Virginia.  Brown bag lunches are welcome, and drinks will be provided.  These programs are free to family caregivers.  The first program is entitled “Safety in the Home and Away,” and it will be held on Wednesday, January 13th.  Please register at least two business days before each program by phoning Carol Gurioli at 757-459-2405 or e-mailing her at carol.gurioli@alz.org .

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