Tax Savings for Investor:
• Capital losses offset capital gains on a dollar-for-dollar basis.
• You can only able to take $3,000 in capital losses per year against ordinary income. Losses over $3,000 may be carried back or forward to affect other year tax returns.
• Net long-term capital gains generally are taxed at 15 percent for both regular tax and AMT purposes. Keep in mind, though: You have only through 2010 to take advantage of the 15 percent rate, unless Congress extends it. The long-term capital gains rate is 0 percents through 2010 (unless Congress extends it) for gain that would be taxed at 10 percent or 15 percent based on the taxpayer’s regular income tax rate.
Tax Savings for General Business:
• Make anticipated purchases now rather than in early 2010
• Pay for services in advance now that you will receive in 2010
• Set up a retirement plan such as a SEP/IRA
• Set up an employee benefits plan such as medical insurance, 401K, & Life insurance for employee
• Review the business structure. You might save tax if you change your business structure. Ask us for advice
• Record your “business use of the car” to get the “Standard Mileage Benefit”. IRS upgraded the standard mileage deduction to 55 cents per mile
• Justify “Business Meal” and “Business Travel” by keeping the evidence of the business purpose
• To avoid penalties for under estimated tax payments, make sure your estimated tax payments or withholding equals at least 90 percent of your tax liability for 2009 or 110 percent of your 2008 tax (100 percent if your 2008 AGI was $150,000 or less)
• The American Recovery and Reinvestment Act of 2009(ARRA) extends the $250,000 first-year Sec.179 expensing amount through 2009. Business owners can use the Sec.179 election to deduct (rather than depreciate over a number of years) the cost of purchasing such things as new equipment, furniture and off-the-shelf computer software
Cash Basis Business:
• Delay billing out for services or merchandise sales so that payment will be received in the following year
• Accelerate deductions by paying outstanding bills and stocking up on merchandise & supplies
Accrual Basis Business:
• Accrue bonuses and other payments to employees in 2009 year end ( you can actually pay until March 15, 2010)
• Authorize the Charitable Contribution and make note of it in the corporate minutes
• Reminder: 2010 federal tax rate is 0.5% lower than 2009: thereby, deferring income to 2010 is more tax savings in normal circumstances
Individual Year End Tax Planning:
• Pay Charitable Contributions to Charity (Either Cash or Non-cash) before Dec 31, 2009. You need a written receipt from the charity or a canceled check or other bank record showing the charity’s name and the amount and date of your contribution.
• Pay Jan 2010 Mortgage payments before Dec 31, 2009
• Put your children to work (Age between 14 and 18, or up to 23 if your children are college student) if you are self employed
Other Tax Savings Plan:
• Buy the Rental Property for the tax shelter if your regular income is less than $150,000 per year
• Convert the Credit Card/Auto Loan to Home Equity Loan (which is tax deductible)
• Maximize the I.R.A. contribution ($5,000 per person in 2009, $10,000 for joint tax return) unless you have 401K plan from the job. An additional $1,000 “catch-up” contribution is allowed for individuals age 50 or older
• The First Time Homebuyer Credit: remember that the credit is only available to first time homebuyers. To be more specific, the IRS defines a new homebuyer as a person who has not owned a principal residence during the three-year period prior to the purchase. Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return
• Energy Conservation Credit: If you make an energy efficient upgrade to your home-such as installing double-paned windows or buying an approved washer and dryer-you can take a deduction for up to $1,500. However, you must divide the deduction between the 2009 and 2010 tax years, so you will only be able to claim $750 this year
• Automobile Breaks: The credits apply to low speed electric vehicles, as well as cars with at least four wheels that draw propulsion using a rechargeable battery. Depending on the height and weight of the vehicle the value of the credit can range from $2,500 to $15,000
• Unemployment: the first $2,400 worth of unemployment benefits is income tax free
• Unlike the Hope credit that it temporarily replaces for 2009 and 2010, the American Opportunity credit is available for the first four-years of college education, is worth up to $2,500 in tax credits on the first $4,000 of expenses, and up to 40% of the credit is refundable -- meaning it can generate a tax refund in excess of what you paid in through withholding. Also, the cost of books, software, and other college education expenses can be included when calculating this credit
• Estates of up to $3.5 million may avoid federal estate tax in 2009