Johnson Consulting does not provide tax advice, but relies solely on the experience and expertise of Tax Services
As the year end approaches, now is the time to start planning for your 2009 income taxes. Conventional tax planning calls for deferring income into 2010 and accelerating tax deductions into 2009. However, these are anything but conventional economic times. With large federal deficits and an expanding federal debt, we see increased tax rates in the future. The only question is how high and when will these tax increases take effect. Much will depend on how the economy performs in 2010. If the economy continues to struggle in 2010, we feel that the tax cuts scheduled to expire at the end of 2010 will simply be allowed to expire. However, if the economy improves during 2010, we think that we could see increases as early as 2010.
Most taxpayers have thus far experienced lower taxable incomes in 2009. Many taxpayers have large capital losses generated in 2008 that are being carried over to 2009. Investment income in 2009 will most likely be lower. This means that for many taxpayers, their marginal tax rates will be lower in 2009 than they expect to have in 2010. Therefore, it may make sense this year to accelerate income into 2009 and defer deductions into 2010. When looking at any tax strategy, the alternative minimum tax should be considered.
On the estate tax front, the estate transfer tax is scheduled to expire at the end of 2009. We do not feel that Congress will allow this to occur. We think that the $3.5 million estate tax exemption and 45% tax rate in effect for 2009 will continue into 2010.
Taxpayers should remember to take advantage of the annual gift tax exclusion. The annual exclusion for 2009 and 2010 is $13,000 per donee. The exclusion applies to each donee. In addition, unlimited medical and educational gifts can be made on behalf of a donee provided the gift is paid directly to the medical provider or educational institution. Care should be taken when considering gifts made late in the calendar year. Time should be allowed for checks to clear the bank so that two years worth of gifts are not deemed to have been made in the same calendar year.
The one wild-card in the tax arena is health care overhaul legislation. Various health care plans have been proposed. We feel that some type of health care bill will be passed in 2009 or early 2010. It is still too early to determine how any new health care plan will be paid for and how this will impact tax rates.
If you have further questions, we would be glad to get you the answers… just give us a call