Thursday, December 02, 2010
Estate Planning Lawyer in Houston Reveals Best Holiday Tax Moves
As an estate planning lawyer in Houston, I obviously pay close attention to the estate tax situation. Still waiting for Congress on that one!
But whatever they do, I am all for my clients keeping their tax bill low, and I pay close attention to the tax code for all of our estate planning decisions.
But the problem for many families is that many tax advisors make things so complicated! (Of course, many situations are, indeed, complicated...but come on--plain English sometimes would help.)
So, I thought I would chime in, and translate some of the CPA gobbledy-gook into simple steps which will keep your tax bill from biting you in the rump come tax time...
1. Sell certain (appreciated) assets
Right now (until Dec. 31 at least), the long-term capital gains tax rates are at historic lows. Come January 1, there is a very good chance they could be slightly--or significantly--higher. So you will pay less taxes if, by Dec. 31, you sell stock and other assets that have appreciated and which you have owned for more than a year.
If you are in the 25 percent tax rate bracket or higher, your long-term capital gains rate is just 15 percent. If you are in the 15 percent income tax bracket or lower, you will not owe any capital gains taxes.
2. Donate
It is not just because 'tis the season, but often (if we are all honest) because the year-end is so close. So, obviously, when it comes to taxes, giving to a nonprofit can be like a money-saving gift to yourself. If you itemize your deductions, you can claim your charitable donations, both of cash or goods.
In fact, if you are *close* to being able to itemize deductions, making some nice gifts this month can push you over the top into some major tax-savings. And, of course, there is the added benefit of what happens to YOUR mindset when you give.
What is even better, in 2010--and this year only (at least for now)--there is no itemized deduction limit for anyone. So everyone who itemizes deductions, regardless of how much they make, gets to claim all of their itemized deductions.
But one caveat: increasing deductions could cost you if you end up owing under the alternative minimum tax.
3. Make the switch to Roth
Changing a traditional IRA to a Roth is even better this year because the $100,000 income threshold is gone. (However, taxes still will be due on any converted money that was not previously taxed.)
Even better: if you make the traditional-to-Roth IRA switch by Dec. 31, you can defer payment of the associated taxes until you file your 2011 and 2012 tax returns.
The same thing applies to certain 401(k) accounts too ... you can defer tax payment over the next two years.
4. Put Those New Windows In!
Many "tax people" have been pounding this drum for a while, for the simple fact that (because of the last "stimulus" package) replacing windows, doors, and HVAC systems-- as well as installing new insulation--could net you a $1,500 tax credit on your 2010 tax bill! Credits always beat deductions. Note, however, that if you claimed the full credit on your 2009 return, you don't get it again this tax year.
5. Adjust your withholding
Do you intentionally get a big refund each filing season? Quit that! You are providing Uncle Sam an interest-free loan of your money.
Submit a new W-4 now so that your payroll withholding is more closely in line with your future IRS bill. It could even give you a few extra dollars at the end of the year to spend on holiday gifts!
Oh, and just so you know, it is growing very likely that whatever Congress decides on the tax cuts, payroll calculators may not have time to update by January 1st. So, keep that in mind as well, if you are on a payroll.
I hope this was simple and straight--as usual.