In 2009, it seemed as if new tax laws were being passed, amended, or extended monthly. This year may be another active one
of changes to the tax code. I encourage you to begin the tax planning process earlier than normal this year to take advantage
of some of the opportunities. Some of the items I will have at the top of the agenda for my clients:
Bill Cleveland, CPA, CFP
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- Roth IRA conversion. The opportunity to convert an IRA to a Roth IRA no longer is limited to individuals with $100,000 or less in income. Although
not appropriate for everyone, it is well worth your time to understand the pros and cons of making a conversion. It is most
advantageous if you can use funds outside of the IRA to pay the tax, so if you need to withdraw funds from the IRA to pay
taxes, then you may want to think twice about converting. Given the uncertainty of future tax rates, for some individuals
we favor the tax diversification strategy—having some assets in vehicles such as a Roth IRA, where qualified distributions
are tax-free, and some assets in vehicles such as IRAs and other retirement plans where distributions are taxable. You can
convert a portion of your IRA each year based on your tax bracket, comfort level, and individual situation. For more information
on this topic, see Lewis Altfest's column in the October 23, 2009, issue and David Schiller's article in the November 6, 2009,
issue of Medical Economics.
- Homebuyer credit. This credit was extended late last year for contracts signed by April 30, 2010, and closed by June 30, 2010. The $8,000 tax
credit for first-time homebuyers remains in place.
The new law added a $6,500 tax credit for taxpayers who are buying a principal residence and have owned and lived in the same
home for five of the eight years preceding the new home purchase. It also allows 2010 buyers to claim the credit on either
their 2009 or 2010 returns.
Income limits to qualify also are more generous. The credit now begins to phase out at $125,000 for single filers and $225,000
for joint filers. It seems unlikely this tax credit will be extended again. Keep in mind, though, that on a $300,000 home, $6,500 is 2.1% of
the purchase price, so small changes in the price as well as the costs to carry your current residence until it sells may
quickly wipe out any benefits of receiving the credit.
- Energy efficiency improvements. You may be eligible for a tax credit for adding insulation, energy-efficient windows, or energy-efficient heating and air
conditioning systems. The credit is 30% of the cost of the improvements up to a maximum tax credit of $1,500.
- Expiration of 2001 and 2003 tax cuts. 2010 is a big year to make decisions on whether to accelerate or defer income. This year is the last for the 2001 and 2003
individual income tax rate reductions. Rates are at historic lows, so good tax planning actually may mean accelerating income
and the associated tax liability into 2010.
Effective January 1, 2011, the top tax rate increases from 35 percent to 39.6 percent, and the long-term capital gain rates
increase from 15 percent to 20 percent. President Obama repeatedly has stated that he will not raise taxes on married couples
making less than $250,000 and singles with incomes less than $200,000, so comprehensive legislation in 2010 will have to prevent
this from happening. If you are planning to accelerate income into 2010, then closely monitor the discussion in Congress to
ensure that changes made do not affect your planning.
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The author is a fee-only certified financial planner with Preston & Cleveland Wealth Management LLC (http://www.preston-cleveland.com) in Atlanta and Augusta, Georgia, and a member of the National Association of Personal Financial Advisers. The ideas expressed
in this column are his alone and do not represent the views of Medical Economics. If you have a comment or a topic you'd like to see covered here, please e-mail meinvestment@advanstar.com
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