With the economic issues we are all facing, now is the time to plan for April 15 so that you are able to put as many tax dollars as possible back into your pocket. If you make the right moves today-you can save a bundle!
The key to year end planning is simple -look at the overall impact of two years-2008 and 2009-as you weigh your options. The question you need to ask is: should I accelerate or defer my income and/or my deductions? The answer is all about tax bracket …will yours increase or decrease in 2009?
Rumors are spreading like wild fire …we’re not quite sure what is going to happen for 2009, so assume the worst and that is that the tax rate will increase to 39.6% for married couples with incomes over $250,000 and singles over $200,000. With that being said, consider these tax planning suggestions:
. Game the Standard Deduction. If your 2008 itemized deductions won’t quite hit the standard deduction amount for 2008, delay taking some of them so that you can itemize in 2009. In 2008, the standard deduction for marrieds is $10,900 plus $1,050 for each spouse that is over 65. Singles get $5,450…$6,800 if 65 or older.
Factor in the extra standard deduction for real estate taxes coming your way in 2008 and 2009. Marrieds can add up to $1,000 and singles $500!
.Shift itemized deductions between years by: mailing your January ‘09 estimate late in December, making your January, ‘09 mortgage payment in December, considering paying for elective medical procedures before the end of the year if they put you over the 71/2% threshold, and making all of your donations in the current year.
TAXPAYER BEWARE! Keep in mind, however, that high income taxpayers lose some itemizations so if your income is greater than $159,950 your deductions are actually trimmed by 1% of the excess, but not more than 80% of the total.
.Don’t miss the new 0% tax rate on long-term capital gains and dividends. If you are in the 10% or 15% brackets this year, profit from the sale of assets owned over a year plus dividends are tax free until they push you into the 25% bracket
Confusing isn’t it? If you make over $100,000 consider using a tax professional this year…they can help you make difficult financial and tax decisions regarding capital gains and losses, alternate minimum tax, retirement distributions that could take a significant bite off your tax bill.