2010-2011 Planning Actions, Strategies & Updates

Alternative Minimum Tax (AMT) Planning

• The AMT can create an effective flat tax rate of 26% or 28%
• In certain situations, the AMT creates planning opportunities such as accelerating income taxed at 28% vs. top bracket of 35% or higher (Roth conversion and/or IRA required distributions strategies)
• Timing of any fourth quarter state estimated payments should be considered

Roth IRA Conversions and Strategies

• Powerful wealth transfer tool
• 2010 conversions provide the flexibility to:
  • pay taxes in 2010;
  • spread conversion income and taxes equally over 2011 and 2012; or
  • undue the conversion, with no impact, prior to your return filing date, including extensions;
• AMT conversion strategy: Use the flat tax rate (26% or 28%) to your advantage and convert amounts to a Roth IRA at that rate
• Tax-free conversion strategy:
  • applicable in specific situations involving traditional IRAs that contain both pre-tax and posttax funds
  • involves transferring assets into a current 401(k) plan, if the plan allows in-service contributions
  • allows for a conversion of the post-tax IRA funds to a Roth IRA, tax-free

Investment Structure

• Assess the investment structure within taxable and retirement accounts, especially as future tax rates are determined
• Analyze the potential to recognize gains and realize income, especially as future tax rates are determined
• Consider diversification now, especially if capital gains rates increase

Income Deferral Decisions

• Short term cash needs or low tax brackets may warrant acceleration of IRA required distributions or other income
• Long term deferral still a very powerful strategy
• Closely held companies should consider year-end dividends, due to possible tax rate increases

Reminders

• IRAs: take required minimum distributions (RMDs) if you have reached age 70 ½
• Charitable Gifting: monitor tax legislation for ability to donate portions of required minimum distributions directly to charity and avoid recognizing as income
• Energy Tax Credits:
  • make energy saving improvements to your main home (i.e. insulation, windows) and qualify for a 30% credit up to an aggregate of $1,500 for 2009 and 2010
  • Substantial tax credits are available for installing qualified energy generating equipment (i.e. solar electric panels, geothermal water heaters)
• Capital Gains: realize losses on stock while substantially preserving your investmen

Attachments:

Year End Letter Attachment.pdf