Tax Lawyer's Blog

Less than a week left to do year end 2009 tax planning and William Perez gives us a neat list of the traditional year-end moves:

Tax planning at the end of the year involves a few basic ideas:

1. if you can, defer taxable income to the following year;
2. if you can, accelerate tax deductions into this year by prepaying; and
3. using up tax-free funds in flexible spending accounts.

[H]ere’s a sampling of deduction-decisions that are made only during the calendar year:

• Charity & church donations,
• Medical expenses (including FSA reimbursements),
• Deduction for sales tax paid on a new vehicle, and
• Deductions for business-related expenses.

This is generally good advice with one caveat: Because the Obama administration plans to increase income tax and capital gains rates in 2010 taxpayers might want to reconsider traditional tax planning advice in 2009 and accelerate (or at least not defer) the recognition of income.

Put another way, if we take President Obama and Congressional Democrats at their words, 2009 rates are as low as we’re going to see in the next several years.

Finally, Perez points out that not all tax planning has to be done before year end:

It’s also important to keep in mind that some tax-saving strategies can be put on hold to next year, while others need to be acted on this year. Here’s decisions you can safely hold off on making until April 15th, 2010:

• Contributing to an traditional IRA, Roth IRA, SEP-IRA, solo 401(k), or Health Savings Account for 2009.

Our Advice: We recommend that taxpayers consult an experienced tax professional before developing and implementing a tax planning strategy.

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