IRS changes the Standard Mileage Rate

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.

The real question is whether this rate is realistic for the increasing costs we face while using our vehicles for business.  The only way to know for sure is to keep track of your expenses and see which method works best.

If you need help in setting up a daily system to keep track of your expenses, let us know, we can help.

How Planning Can Save you $1000+

Looks like summer is finally right around the corner. That means the year is almost half over and before you know it’s over.

Too many clients (almost all of them) wait until the winter before they look at their tax obligations. Even worse, they wait until that season before they speak with their professional in any kind of proactive way.

That’s a problem, and it could be costing you some serious savings.

Here’s an example:

Let’s say that you were considering taking money out of a pension (401k) to finance the down payment on a house. It’s quite a common maneuver. But let’s say next that you do this withOUT discussing it ahead of time with a professional. That could be a four (or five) figure mistake.

If you were to come into our offices or contact us before such a move, I would ask you a few easy, but very important questions, and then (depending on the answer) likely advise you to first roll the money ($10,000) into a Traditional IRA. You could then withdraw the money at a savings of $1,000.00. This is because money used for a first home, up to $10,000, is penalty-free when taken from an IRA, but NOT a 401K.

Would you be pleased by that move? I’d guess “yes”, especially if you knew about other clients I know of who failed to plan. This couple just learned of the $41,000.00 penalty they had to pay for doing the same thing, but from their 401k.

Ouch.

There is no guarantee that you will save by speaking to us in advance. But this I CAN guarantee: If you don’t speak with us, we won’t be able to save you a dime.

Let us know if this was helpful.  Do you have a situation that might create a tax issue. Be proactive and contact a tax professional.  Hopefully us.

What to do if you have not received your tax refund!

It has been several weeks since you filed your return and you have not received your refund. What should you do? Here are some  steps you can take.

Your Refund Status: Make sure you have a copy of your tax return on hand or know your “filing status“, SSN and the exact dollar amount of the anticipated refund.
* Online: Go to IRS.gov and click on “Where’s My Refund”. (http://www.irs.gov/individuals/article/0,,id=96596,00.html?portlet=4)
* Automated Phone: Call 24 hours a day, 7 days a week for automated refund information.
* In-Person Phone: Call during the hours shown in your IRS form instructions.

“Do I need to keep a copy of my return?”
Yes, for a *minimum* of three years. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ll soon have a Note about Amended Returns, and you will need a copy for that process, as well.)

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

We will have more ideas for you to consider so that this year you will save more taxes.  Watch our blog for upcoming postings. Any questions, send us a note.

When The Tax Return is Wrong

Do you have a tax accountant who guarantees their work…in writing?

Sure, some guys might say: “We’ll make it

right if we screw up”, but then the stuff hits the fan and they fight you every step of the way.

I’ve heard too many horror stories about taxpayers getting a letter from the IRS, then they take it to their accountant, and then the letter sits on a desk gathering dust.

Or stories about the CPA who makes some calls on your behalf, but then you get charged an arm and a leg in the process.  Or sadly, a taxpayer doesn’t get any help from the person who prepared their taxes for them so they “go it alone”, call the IRS themselves and have to try to figure out what to do and not to do during this normally ugly IRS correspondence … THIS can be a nightmare!

Don’t let that happen to you. You need to have a written understanding with your tax professional that you won’t be left in the lurch. Oh, and also-does this guarantee actually do something you want it to?

I’ve seen some accountants guarantee they will file your taxes for you by April 15th or they will file an extension for you.  Well…great!  That sure makes you feel good in the morning, doesn’t it?   Other weak guarantees I’ve seen in the tax industry are, “We guarantee we will begin preparing your tax return the same day we meet with you.”

That means nothing to me.  I don’t care when you start preparing my taxes.  I want to know how long it is going to take you to finish it and do so without leaving out silly errors you know you should have caught.

So remember:  the guarantees should be in areas you care about, like:

Tax Return Accuracy … Speed of Service … Most Money Legally Yours … Ongoing IRS Protection For Years After Filing …

These are the things YOU care about!  Make sure the tax professional you choose stands behind these critical areas of tax filing so you get the most out of your tax filing experience.

We stand behind our work and have done so for the last thirty years.  See what others have to say about our work.  Check out our web page.

PS–If you would like to receive weekly emails on various topics, you may go HERE to subscribe: http://howardkaufman.mylocaltaxpro.com

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Is There Really Any Difference?

There’s a news story floating around the other week about politicians having to prepare their own taxes. (Here’s what I’m referring to, btw: http://www.nytimes.com/2011/02/13/business/yourtaxes/13essay.html) Apparently, the proposal gets a few laughs from those who hear about it, because, really — it’s becoming mind-numbingly complex, even for many professionals.

You think I’m kidding on that one? Well, you should see some of the

returns we review for people who have had them prepared elsewhere … yikes.

So, just as the choice to file taxes via robotic software fails the test, selecting the wrong professional to file your returns can be a big, big mistake.

Here’s what I mean.

Is There Really Any Difference?

Unfortunately, with the way that most tax professionals and CPA‘s present themselves to the world, it seems like we’re all the same. We all seem to offer the same services, for pretty similar fees. If I weren’t working every day in this industry, I’m pretty sure I would think that all accountants and CPA’s were the same. Nothing could be further from the truth.

You see, each tax professional does have certain qualifications. Some might be experts at this sort of tax law, or in working with farmers or with getting money back through IRS representation, or a whole variety of different things…but are they really providing what you, the consumer, wants?

What do you want from a tax preparer?

When I sit down and talk with regular consumers, here’s what I discover:

You want to be able to work with a caring professional…NOT one of those “cattle call” shops, where you’re squeezed in with a bunch of other people, and seen by harried, poorly-trained employees that just took a basic tax course.

You want an accurately filed tax return.  You want the whole thing broken down in terms that you understand, and in a way that you don’t need a translator to communicate. You want there to be processes in place to ensure that the most money is kept out of the grasping hands of Uncle Sam, and in your wallet (legally).

You want a “heads up” about future ways you can legally add deductions and make sure that you can get even more money back in the future. You want assurances everything your tax preparer is doing for you is valid and correct, so a guarantee(s) is essential to the process.

And of course, you want do it fast.  Look, I know this is a big deal for consumers…you don’t want your accountant pushing back at you all the time, saying “give me more time”, when you know it’s not because they’re working hard on your behalf, but that they’re so poorly organized that they’re not getting ANYBODY’S work done on time!

Oh, and if you ARE getting a refund, you want a tax firm who can get you the most money back the fastest … with the most electronic filing options available.

Here’s the bottom line:  You want professionalism … accuracy … you want clarity … you want to be aware of beneficial tax options … you want peace of mind … you want an efficient use of your time …. you want your refund money back in your hands fast …. And at the end of the day, you want to KNOW you got the most money back from Uncle Sam AND know that the IRS will stay off your back so you can sleep like a baby at night!

If the accountant or tax professional you are talking to can’t do these things, you need to call one that can.
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The Tax Paper Chase List-Check out our discount

This has ALREADY been one of our most intense years, in preparing the groundwork for “tax season”, simply because the tax code is getting even MORE complex. And, truly–it seems as if I write that *every* year, which isn’t a great sign for families who are wanting to do their own taxes!

And, of course, Congress’ last-minute tax agreement didn’t make things any easier.

Don’t cry for us — this is our full-time occupation, after all! But I truly do pity those who attempt to wade through all of the different codes and forms on their own, and not devote a week’s labor to the transaction. It really doesn’t pay to “go it alone” for certain tasks.

So, for those of you who want our help, I’ve got a special incentive for you at the end of this blog post l … AND, I’ve got a handy little list of what you’ll need to bring in or will need to complete your tax organizer we send to you. It’s mostly complete, but there may be certain situations where we’ll need other documentation to get you even more deductions. But, of course, we’ll let you know about that, should the situation arise!

Let me know your thoughts … and, of course, if you’d like to talk this over with us we DO have a couple slots left! Call or email soon, though.

The Tax Paper Chase List
Yes, this is a long list — but it’s the unfortunate reality of our tax code that it’s not even comprehensive! But these items will cover 95% of our clients.  Really, this is for ensuring that we’re able to help you keep everything you deserve to keep under our tax code.

Even if for some strange reason you won’t be using our cost-effective services this year, feel free to use this list as a handy guide…

Personal Data
Social Security Numbers (including spouse and children)
Child care provider tax I.D. or Social Security Number

Employment & Income Data
W-2 forms for this year
Tax refunds and unemployment compensation: Form 1099-G
Miscellaneous income including rent: Form 1099-MISC
Partnership and trust income
Pensions and annuities
Alimony received
Jury duty pay
Gambling and lottery winnings
Prizes and awards
Scholarships and fellowships
State and local income tax refunds
Unemployment compensation

Homeowner/Renter Data
Residential address(es) for this year
Mortgage interest: Form 1098
Sale of your home or other real estate: Form 1099-S
Second mortgage interest paid
Real estate taxes paid
Rent paid during tax year
Moving expenses

Financial Assets
Interest income statements: Form 1099-INT & 1099-OID
Dividend income statements: Form 1099-DIV
Proceeds from broker transactions: Form 1099-B
Retirement plan distribution: Form 1099-R
Capital gains or losses

Financial Liabilities
Auto loans and leases  (account numbers and car value) if vehicle used for business
Student loan interest paid
Early withdrawal penalties on CDs and other fixed time deposits

Automobiles
Personal property tax information
Department of Motor Vehicles fees

Expenses
Gifts to charity (receipts for any single donations of $250 or more)
Unreimbursed expenses related to volunteer work
Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)
Investment expenses
Job-hunting expenses
Education expenses (tuition and fees)
Child care expenses
Medical Savings Accounts
Adoption expenses
Alimony paid
Tax return preparation expenses and fees

Self-Employment Data
Estimated tax vouchers for the current year
Self-employment tax
Self-employment SEP plans
Self-employed health insurance
K-1s on all partnerships
Receipts or documentation for business-related expenses
Farm income

Deduction Documents
State and local income taxes
IRA, Keogh and other retirement plan contributions
Medical expenses
Casualty or theft losses
Other miscellaneous deductions

We hope this helps, and we look forward to seeing you this year!

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Warmly,

Howard

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Special Early 2011 Blog Offer
$29.00 Off Any Tax Service
Special Gift Certificate
Print This blog post and bring it to our office–and receive an instant $29 credit towards any tax or financial service for 2011

Expires February 11th, 2011
Not valid with any other offer
+++++++++++++++++++++++++++++++++

So what will the new tax changes do for me!

First of all, the new tax changes will give some stability in tax planning.  The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for 2011 and 2012. But be careful,  the provisions are temporary and the new law places the ultimate fate of the Bush-era tax cuts to 2012, a presidential year.

Here are some details:

Individual income tax rates that are presently in place will be extended for 2011 and 2012 with the maximum tax rate at 35% versus 39.6%. In addition, the amount withheld  from paychecks for social security will drop to 4.2% from the present 6.2%. This is only for the 2011 year. What that means is that an individual earning $50,000 in 2011 will see an approximate tax savings of $1,890 in combined income tax and payroll tax rate reductions. This information courtesy of   Commerce Clearing House, publisher of tax resources.

Other individual income tax areas will stay the same. For example,  capital gains/dividends will still be taxes at 15%.  There will be relief in the itemized deduction limitation, marriage penalty , child tax credit, earned income tax credit, adoption credit, dependent care credit, mortgage insurance premiums, educational assistance exclusion, student loan interest deduction,  and the alternative minimum tax.

Estate Tax

The estate tax is reinstated in 2011 but at a much higher rate. Basically with some estate planning, up to $10 million can be excluded by a husband and wife. $5 million for an individual.  There are some options for those who died in 2010.

Business

Business has been given some tax incentives over the next two years.  100 Percent Bonus depreciation is available for certain periods over the next two years along Section 179 expensing.  Research Tax Credits, Small Business Stock incentives and other credits.

Bottom Line

We have only scratched the surface of this new tax changes. You need to sit down with a tax professional to see how this impacts you. There is only a two year period to take advantage of these opportunities. I am sure that in two years,  the tone of the political  and economic environment will be different and the opportunities we have before us will be gone.

We offer free first time consultations to review your situation. Check us out. You have nothing to lose.

Related articles

• What does the tax deal mean to you? (usatoday.com)
• So, what does this tax bill stuff really mean for you? (capitolhillblue.com)

2010 Year End Strategies to DO NOW!

2010 Year-End Tax Planning Memo

Image via Wikipedia

As the end of the year approaches, time is of the essence since many changes may take place if Congress acts, or even more changes if it takes no action, before the end of December.  Here are some of the planning issues you may want to consider.

CHARITABLE CONTRIBUTIONS

In the usual situation, you may deduct the full amount of cash donations made to qualified charitable organizations.  If you donate appreciated property held for more than one year, you can generally deduct the property’s current fair-market value.

Year-end strategy: To increase your charitable deduction for 2010, be sure to complete your gifts before January 1, 2011.  If you use a credit card to pay for year-end donations, you can deduct the contribution on your 2010 return – then pay off the credit card charge in 2011.

Be aware of the strict substantiation rules for monetary gifts.  You must maintain a record of the contribution, such as a bank statement, receipt or written communication supplied by the charity.  The written communication should show the charity’s name, the contribution date and the amount.

Note: If you expect to be in a higher tax bracket in 2011 than 2010, you might postpone charitable gifts to offset higher-taxed income next year.

Alternative Minimum Tax

The alternative minimum tax (AMT) is a special tax return calculation involving certain “tax preference” items, technical adjustments and an exemption amount based on your filing status.  If the resulting AMT liability exceeds your regular income tax liability, you must pay the AMT.  The AMT rate is 26% for the first $175,000 of AMT income, 28% on amounts above $175,000.

Year-end strategy: Review your AMT liability for 2010.  If warranted, it may be advisable to shift tax preference items to 2011 to avoid or reduce expected AMT liability for this year.

The AMT exemption amounts have been “patched” several times during the past decade.  The chart here shows exemption amounts dating back to 2006:

Filing Status	2006	2007	2008	2009	2010 *
Joint filers	$62,550	$66,250	$69,950	$70,950	$45,000
Single filers	$42,500	$44,350	$46,200	$46,700	$33,750
*Proposed legislation could increase these amounts.

Be aware, however, that the exemption amounts are lower for high-income taxpayers.  The reduction of the exemption is equal to 25 cents for each dollar of AMT income above $150,000 ($112,500 for single filers).

Note: If you are facing AMT liability this year and expect to be in a high regular income tax bracket next year, you might accelerate additional income into 2010.  The extra income will be taxed at either the 26% or 28% AMT rate.

Higher Education Expenses

The tax law provides some relief to parents who pay higher education expenses for their children.  However, be aware that the tax benefits are phased out for taxpayers with income above certain levels.

Year-end strategy: Generally, you can claim a deduction or credit (but not both) in 2010 for amounts paid or incurred this year.  For instance, if you pay the tuition bill for the spring 2011 semester in December, you may qualify for a deduction in 2010.  Here is a brief summary of the two key tax breaks.

• Tax credits: You may claim either one of two credits.  Under the revamped American Opportunity credit (formerly the Hope credit); the maximum credit for 2010 is $2,500.  The credit begins to phase out for joint filers with a modified adjusted gross income (MAGI) of $160,000 ($80,000 for single filers).  The maximum Lifetime Learning credit of $2,000 begins to phase out for joint filers with an MAGI of $100,000 ($50,000 for single filers).

• Tuition deduction: The maximum deduction for 2010 is $4,000 of qualified tuition and related fees for joint filers with an MAGI of $130,000 or less ($65,000 for single filers).  The maximum deduction is $2,000 for joint filers with an MAGI up to $160,000 ($80,000 for single filers).  Taxpayers with an MAGI above these limits do not qualify.

Note: Technically, the American Opportunity credit is scheduled to expire after 2010, but it may be extended by new legislation.

Estimated Tax Penalty

The IRS may impose an underpayment penalty if you do not pay sufficient “estimated tax” during the year through quarterly installments or income tax withholding, or a combination of the two.

Year-end strategy: Seek tax shelter under one of the safe harbor rules.  Typically, you may qualify by adjusting payroll withholding at year-end.  The safe harbor exceptions are as follows:

1. Your annual payments equal at least 90% of your current liability.
2. Your annual payments equal at least 100% of the prior year’s tax liability (110% if your AGI for the prior year exceeded $150,000).
3. You make installments currently under an “annualized income” method.  This method is only if you receive or accrue most of your annual income in a short span (e.g., from holiday sales).

Note: If you increase withholding after clearing the Social Security wage base ($106,800 for 2010), you may notice little or no reduction in take-home pay.

Residential Energy Credit

Due to a recent tax-law change, you may be able to claim an enhanced “residential energy credit” for qualified energy-saving improvements.

Year-end strategy: Complete the improvements before January 1, 2011.  As the law stands now, the credit equals 30% of the cost of expenditures in 2009 and 2010, for a maximum credit of $1,500 covering the two years.

The list of qualified expenses may be more expansive than you think.  It covers such items as insulation materials; exterior windows (including skylights); exterior doors; central air conditioners; natural gas, propane and oil water heaters or furnaces; hot water boilers; electric heat pump water heaters; certain metal roofs; stoves; and advanced main air-circulating fans.

Note: Prior to 2009, the credit was equal to only 10% of qualified expenses, with a $500 lifetime dollar cap.  Proposed legislation may extend and/or modify the current credit.

Miscellaneous Tax Benefits

• When state law permits, you can consolidate outstanding personal debts into a home equity debt.  Interest on personal debts is not tax deductible, but you may deduct mortgage interest paid on the first $100,000 of home-equity debt, no matter how the proceeds are used.  Caution: The debt must be secured by your home, so use this technique judiciously.
• The tax law allows you to deduct your annual unreimbursed medical expenses exceeding 7.5% of your AGI for 2010 (scheduled to increase to 10% in 2013).  If you are near the 7.5% mark or already over it, schedule nonemergency medical and dental visits before the end of the year.
• As a general rule, you may claim a dependency exemption of $3,650 in 2010 for a child under age 19 (or a full-time student under age 24) if you provide more than half of his or her annual support.  It does not matter how much taxable income the child receives.  To secure an exemption for an older child, make sure you clear the half-support mark this year.
• Miscellaneous expenses are deductible to the extent that the annual total exceeds 2% of your AGI.  When it is warranted, pay qualified expenses (e.g., tax assistance fees) before the end of the year to maximize your deduction for 2010.
• Under the “kiddie tax,” investment income received by your child under age 19 or full-time student under age 24 is generally taxed at your top tax rate to the extent it exceeds $1,900 in 2010.  Try to minimize any kiddie tax impact through astute investment planning.
• If you are in the market to buy a new hybrid vehicle, make the purchase before 2011.  The tax law provides a special credit for hybrid vehicles placed in service this year based on the vehicle’s fuel economy.  Caveat: The credit has been phased out for some of the more popular models.  Consult a tax professional.

Capital Gains and Losses

For tax purposes, capital gains and losses effectively cancel out each other.  However, any excess capital loss can also offset up to $3,000 of high-taxed ordinary income in 2010.  The remainder is carried over to next year.  If a gain from a sale qualifies as long-term capital gain (i.e., you have owned the asset for more than a year), the maximum tax rate in 2010 is normally 15%.

Year-end strategy: If it otherwise makes economic sense, you might time capital gains and losses to your tax advantage.  For example, if you have already realized capital gains in 2010, you might “harvest” capital losses at year-end to absorb those gains.  Similarly, if you have realized capital losses in 2010, you can realize gains at year-end to offset those losses.

For taxpayers in the regular 10% or 15% tax brackets, the maximum tax rate for long-term capital gains in 2010 is 0%.  If warranted, you might have low-bracket children sell securities to realize long-term capital gain in 2010.  But you must also consider any potential kiddie tax impact.

Note: The 15% and 0% maximum tax rates for capital gains are scheduled to increase to 20% and 10%, respectively, in 2011.  However, Congress is weighing proposals to extend lower rates.

IRA Contributions

There are two main types of Individual Retirement Accounts (IRAs) designed to benefit retirement-savers: traditional IRAs and Roth IRAs.

1. Traditional IRAs: Contributions are tax deductible unless you are an “active participant” in an employer-sponsored retirement plan and your AGI exceeds a certain level.  For 2010, deductions are phased out for an AGI between $89,000 and $109,000 for joint filers ($56,000 and $66,000 for single filers).  If your spouse is an active participant and you are not, the deduction is phased out for an AGI between $167,000 and $177,000.

The maximum IRA contribution for 2010 is $5,000.  Furthermore, if you are 50 years of age or older, you can make an extra “catch-up” contribution of $1,000.

1. Roth IRAs: Contributions are not tax deductible, but withdrawals from a Roth in existence five years may be tax-free.  To qualify, distributions must be received after age 59½, upon death or disability, or to pay first-time homebuyer expenses (up to a lifetime limit of $10,000).  The ability to contribute to a Roth IRA for 2010 is phased out for joint filers with an AGI between $167,000 and $177,000 ($105,000 and $120,000 for single filers).

The contribution limits for Roth IRAs are the same as for traditional IRAs.  If you choose, you may allocate contributions to both types of IRAs, up to the total annual limit.

Note: The deadline to make IRA contributions for the 2010 tax year is your tax return due date.  Nevertheless, you can boost retirement savings by contributing sooner rather than later.  This provides more time for contributions to grow on a tax-deferred basis.

Roth IRA Conversions

For the first time ever, many high-income taxpayers may convert a traditional IRA to a Roth IRA.  Previously, this was not permitted in a year in which your MAGI exceeded $100,000.  Due to a recent tax-law change, this limit has been removed, beginning in 2010.

Year-end strategy: Weigh the pros and cons of a Roth conversion.  Remember that a conversion results in tax liability based on the amount transferred to the Roth IRA.  But future Roth distributions may be tax free and, unlike a traditional IRA, annual lifetime distributions are not required after age 70½.

As an added incentive, you can choose to have the taxable income from a Roth conversion occurring in 2010 split evenly between the following two years—2011 and 2012.  Alternatively, if it suits your needs, you can choose to pay the full amount owed on your 2010 tax return.

Furthermore, be aware that you do not have to convert all of your traditional IRA funds.  A partial conversion is allowed.

Note: The decision to convert or not is a complex one.  You should take into account various factors, such as whether IRA funds are needed to pay the tax, your age and health status, your expected tax rates in future years and potential state income-tax liability.  Consult a professional adviser to determine the best course of action.

401(k) Plans

A 401(k) plan allows you to allocate a portion of your salary to an account where the funds can grow on a tax-deferred basis.  In addition, your company may provide matching contributions based on a percentage of your compensation (e.g., 3% of your salary).

Year-end strategy: Increase 401(k) plan contributions at year-end to boost retirement savings.  For instance, you might decide to defer more dollars to your 401(k) account after you clear the 2010 Social Security wage base of $106,800.  This will not reduce your take-home pay if the payroll tax savings are allocated to the 401(k) deferrals.

As with other tax-qualified retirement plans, a 401(k) plan must meet strict nondiscrimination requirements to maintain its tax-favored status.  Furthermore, there is an annual dollar cap on elective deferrals.  For 2010, you can defer a maximum of $16,500 to your account.

Note: If you are age 50 or older, you can add a “catch-up contribution” of $5,500.  Thus, the total maximum deferral allowed in 2010 for 401(k) participants age 50 or older is $22,000.

Estate and Gift Taxes

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 gradually reduced the top estate-tax rate to 45% while increasing the estate-tax exemption to $3.5 million for 2009.  Furthermore, the law completely repealed the estate tax in 2010.  However, the top tax rate and exemption are scheduled to return to pre-EGTRRA levels, beginning in 2011.

YEAR	TOP ESTATE-TAX RATE	EXEMPTION AMOUNT
2002	50%	$1.0 million
2003	49%	$1.0 million
2004	48%	$1.5 million
2005	47%	$1.5 million
2006	46%	$2.0 million
2007–2008	45%	$2.0 million
2009	45%	$3.5 million
2010	Repealed	Not applicable
2011	55%	$1.0 million

Year-end strategy: Review your estate plan.  Upon review, you might decide to reduce your taxable estate via lifetime gifts to family members.  Under the annual gift-tax exclusion, you can give each recipient up to $13,000 in 2010 without any gift tax ($26,000 for joint gifts by a married couple).

EGTRRA includes other key estate-tax provisions.  For example, the basis of inherited assets must be carried over, instead of receiving a step-up, although up to $4.3 million may be exempt.  EGTRRA also imposes “generation-skipping tax” changes comparable to the estate-tax changes.

Note: Congress may yet modify the law or reinstate pre-2010 rules.  Plan accordingly with your professional advisers.

Miscellaneous Tax Benefits

• Defer tax on investment income from certificates of deposit (CDs) and Treasury securities by acquiring investments that mature after 2010.  Generally, the income from these investments is taxable in the year it is received.  Caveat: Consider your expected tax rate for 2011.
• Under the “wash sale rule,” you cannot deduct a loss on securities sales if you acquire substantially identical securities within 30 days.  The easiest way to avoid this result is to wait at least 31 days before you repurchase the same or similar securities.
• It is generally beneficial tax-wise to sell mutual fund shares before the fund declares dividends (the “ex-dividend date”) and to buy shares after the date the fund declares dividends.
• Consider investments in dividend-paying stocks.  As with net long-term capital gain, the maximum tax rate on qualified dividends received in 2010 is 15% (0% for low-income taxpayers).

CONCLUSION

This year-end tax-planning memo is intended only to serve as a general guideline.  Of course, your personal circumstances may require in-depth examination.  We would be glad to schedule a meeting with you to provide assistance with your tax-planning needs.

This year-end planning memo is published for our clients, friends and professional associates.  It is designed to provide accurate and authoritative information with respect to the subject matter covered.

IRS Circular 230 requires us to inform you that the information contained in this memo is not intended or written to be used for the purpose of avoiding any penalties that may be imposed under federal tax law and cannot be used by you or any other taxpayer for the purpose of avoiding such penalties.  Before any action is taken based on this information, it is essential that competent, individual, professional advice be obtained.

Sources:

www.irs.gov

The Economic Growth and Tax Relief Reconciliation Act of 2001

American Recovery and Reinvestment Act of 2009

Small Business Jobs Act of 2010

Patient Protection and Affordable Care Act of 2010

Hiring Incentives to Restore Employment Act of 2010