Deck the Halls…with IRS provided Forms in the Prescribed Manner

With the holiday season upon us comes the sobering realization that after the first of the year we’ll all be poorer and fatter.  If that weren’t enough, tax season will be looming in the not so far off future.  So while our hearts are filled with cheer and the cold weather is still bearable, let’s think about a few ways to be tax-wise (even if pound foolish) before the end of the year.

-Traditional 401(k) Contributions: Up to $16,500 ($22,000 if over 50) can be deferred and thus sheltered from current taxation in 2009 (reducing taxable income).

-Medical Procedures: Medical expenses in excess of 7.5% of adjusted gross income qualify as itemized deductions…acceleration of elective procedures can help to get over this hurdle.

-Capital Loss Harvesting: Financial professionals can assist in offsetting capital gains with losses, thereby decreasing capital gain income or creating a current capital loss deduction against current income (and possibly a carryforward to future years).

-Capital Gain Acceleration: Commentators forecast that the current low capital gain rates may be coming to an end this year or next, tax and financial advisors can assist in determining whether to accelerate gains currently to enjoy these low rates.

-Gifts: Making gifts to children or other family members before the end of the year will allow utilization of the “free” $13,000 gift tax annual exclusion (the amount we’re each allowed to give, per donee, without filing a gift tax return) and could seriously decrease future estate (“death”) taxes.

-529 College Savings Plans: Parents and grandparents can generally fund a 529 plan for children or grandchildren up to $65,000 per donor (i.e., Mom can give $65,000 and Dad can give an additional $65,000) in 2009 without filing a gift tax return.

-College Tuition Payments: Accelerating a college tuition payment for Spring, 2010 semester may engender a tax deduction for 2009 (and 2009 may be the last year for the “above the line” tuition and fees deduction).

-IRA Contributions: In 2009, joint filers with AGI (modified in a special way) less than $89,000 may be able to make deductible IRA contributions in addition to workplace 401(k) contributions.  This could be a great way to save for retirement while further reducing current taxable income.

-Roth Conversions: A tax or financial professional can advise with respect to whether converting some or all of a traditional 401(k) or IRA to a Roth 401(k) or IRA makes financial sense.  The conversion is allowable for everyone starting in 2010 and warrants thinking well in advance.

Oh, and don’t forget…DISCLAIMER: This article is not intended by the writer, nor shall it be understood by the reader, to be legal advice or a legal opinion.  No attorney-client relationship is created as a result of this article.  Tax matters are necessarily unique to each individual and should be thoroughly discussed with a professional prior to taking any action.  The Internal Revenue Service requires me to state that this article is not intended or written by the writer to be used, and cannot be used by the reader, for the purpose of avoiding penalties under the Internal Revenue Code.

How’s that for holiday cheer?

Clint Costa is a licensed attorney and registered CPA practicing in Chicago, Illinois with the law firm of Shaheen Novoselsky Staat Filipowski & Eccleston, P.C.  Besides reading the tax code for fun, Clint and his wife Julie live in the land of milk and bungalows on the northwest side of Chicago.  Clint can be reached at ccosta@snsfe-law.com or by phone at (312) 621-4400.ca-pub-3017103269052419