News Room

To our clients and friends:

With the holidays upon us, we wanted to remind you of a few important year-end tax planning tips. Call us for other ideas that might pertain to your specific situation:

Capital Losses: Most investment portfolios unfortunately are loaded with losses due to our current economic situation. Almost no one should have realized capital gains (say from earlier in the year) and unrealized capital losses. You should analyze your portfolio and make sure an appropriate amount of losses are realized. And don’t forget to include possible capital gain distributions from mutual funds in determining how much realized capital losses are needed. Also remember that up to $3,000 of net capital losses can offset ordinary income, so that should be your goal. Excess losses can be carried forward for future use.

Business Expenditures: As reported last year, businesses can write off up to $250,000 of business property acquired in 2008 under Section 179 as long as total acquisitions don’t exceed $800,000. For certain acquisitions that do not qualify for Section 179, 50% bonus depreciation might apply, whereby half of the acquisition price for new equipment/furniture can be deducted in 2008. In addition, the normal rules in determining whether to accelerate operating business expenses and defer income for cash basis taxpayers will apply. And do not forget that obsolete inventory generally needs to be disposed of to get a current deduction.

Personal Deductions: The economic climate has severely impacted many charities and you are undoubtedly being bombarded with requests for donations. Making charitable contributions before year-end will yield a 2008 deduction, and contributing appreciated securities (if you have any) is a smart way to go. Also, consider paying state taxes before year-end, but beware that if you are in AMT (alternative minimum tax) you will get no federal benefit since taxes are not deductible for AMT purposes. Another caution for homeowners: energy tax credits generally apply to 2009 acquisitions of qualifying property, not 2008.

Impact of New President/Congress? Conventional wisdom is that we will not see any changes to tax rates in 2009 due to the economic situation. Whether it comes true is anyone’s guess. The word on the street is to expect federal long-term capital gains rates to increase from 15% to 20% in 2010, if not earlier and the top two brackets to rise 3-5 percentage points.

Gifts/Estates: $12,000 can be gifted by anyone to anyone in 2008 gift-tax free. No income tax deduction, but it reduces your estate. The annual exclusion rises to $13,000 for 2009. Further, with the decline in asset values, this might be a great time to consider larger gifts through vehicles like family limited partnerships.