Published: Year-End Tax Planning—It's Not Too Late - ETMN, April 2010

The Bottom Line: Year-End Tax Planning—It's Not Too Late
Janice Sansing

Despite confusion created by never-ending legislative changes, the current federal income tax environment is still quite favorable, and it's not too late to consider year-end tax planning. Now is the time to take advantage of the tax breaks that Congress has provided before they disappear.
 
Collect Tax Breaks for Buying New Vehicle.

Thanks to a buyer's market and the recent sales tax breaks, now might be a very good time to purchase a new vehicle. Stimulus legislation passed earlier this year created a new federal income tax deduction for state and local sales and excise taxes paid on new (not used) vehicles that are purchased (not leased) between February 17 and December 31, 2009. The write-off is limited to the amount of taxes on the first $49,500 of purchase price. You can claim the break whether you itemize or not, and it's allowed even if you owe the alternative minimum tax (AMT.) You can claim the deduction on as many vehicles as you care to buy within the designated time frame, and qualifying vehicles include almost all passenger autos, pickups, and SUVs, as well as motorcycles and RVs. However, a phase-out rule can reduce or completely eliminate the break for higher-income taxpayers.
 
Leverage Standard Deduction by Bunching Deductible Expenditures.

If your  2009 itemized deductions are likely to be just under, or just over, the standard deduction amount, consider the strategy of bunching together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. The 2009 standard deduction for married joint filers is $11,400; the magic number for single filers is $5,700; it's $8,350 for heads of households. Examples of deductible items that can be bunched together include the interest due with your January home mortgage payment, charitable contributions, and state income and property tax payments. But, watch out for AMT, as state income and property taxes are not deductible for AMT purposes.
 
Time Investment Gains and Losses and Consider Being Bold about It.

As you evaluate investments held in your taxable brokerage firm accounts, consider the impact of selling appreciated securities. The maximum federal income tax rate on long-term capital gains from 2009 securities sales is only 15%. Therefore, it often makes sense to hold appreciated securities for at least a year and a day before selling.
 
Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end can be a good idea, too. The resulting capital losses will offset capital gains from other sales this year, including short-term gains from securities owned for one year or less.
 
If capital losses for this year exceed capital gains, you will have a net capital loss for 2009. You can use that net capital loss to shelter up to $3,000 of this year's high-taxed ordinary income from salaries, bonuses, self-employment, and so forth ($1,500 if you're married and file separately). Any excess net capital loss is carried forward to next year.
 
Important Point:

Selling enough loser securities to create a net capital loss that exceeds what you can use this year also might make sense. You can carry forward the excess net capital loss to 2010 and beyond and use it to shelter both short-term gains and long-term gains recognized in those years.
 
Take Advantage of Generous But Temporary Business Tax Breaks.

Several favorable business tax provisions have a limited shelf life that may dictate taking action between now and year-end. They include the following:

1. A Bigger Section 179 Deduction. Your business may be able to take advantage of the temporarily increased Section 179 deduction. Under the Section 179 deduction privilege, an eligible business can often claim first-year depreciation write-offs for the entire cost of new and used equipment and software additions. For tax years beginning in 2009, the maximum Section 179 deduction is $250,000 (same as last year). For tax years beginning in 2010, however, the maximum deduction is scheduled to drop back to about $130,000 (depending on the inflation adjustment). Various limitations apply to the Section 179 deduction privilege, so see your tax accountant for more details.
2. A 50% First-year Bonus Depreciation. Above and beyond the bumped-up Section 179 deduction, your business can also claim first-year bonus depreciation equal to 50% of the cost of most new (not used) equipment and software acquired and placed in service by December 31 of this year. The first-year bonus depreciation break is scheduled to expire at year-end unless Congress takes further action. 

Click here to read the article on the East Tennessee Medical News website.