January 2009 News Update

2008 vs. 2009 - Income & Deductions

The year-end tax planning ideology of "defer income and accelerate deductions" didn't necessarily apply at the end of 2008. With eyes towards the changes that accompany the ushering in of a new president, Obama has proposed a reversal of personal income rates to 39.6 percent, and increasing long-term capital gains rates by at least five percent. When you couple this with potential limitations on itemized deductions and exemptions, a ceiling of 39.6% could prove to escalate higher. While an increase in payroll tax, or the timeline surrounding these tax changes remains in question, it seems likely that you can talk about "when," not "if," higher tax rates will be implemented.

Therefore, it is conceivable that taking income and delaying deductions may have been the move for 2008. Of course, this unflappale hindsight will only warrant a pat on the back if and when tax rates change in 2009. Since taking income for 2008 is now a thing of the past, keep a keen eye towards legislation in Washington aimed at changing tax rates in 2009. Taking or defering income versus taking or defering deductions, and your esteemed reputation at the country club, could depend on it!

But don't worry, you can still keep those New Year's party hats and kazoos at arm's length when it comes to 2009 tax breaks for the individual. The recent tax act passed on Oct. 3 has a number of beneficial provisions that do not take effect until 2009, like the restoration of the up to $500 residential energy credit for energy-efficient items for your home. Qualifying improvements include insulation systems, windows and doors, and new items including asphalt roofs with cooling granules and stoves that burn biomass fuel. In addition, there is a $2,000 cap on solar/photovoltaic energy credits for 2008 but no cap for 2009. Thus, if you have put off installation of these materials, whether intentions were lackadasical or savvy, now would be the year to act.

Though it is 2009, there are still several year-end tax planning considerations that can be made for your 2008 return, with the most obvious and commonly utilized meduim being the IRA. Regardless of future tax legislation, a tax deduction combined with tax-deferred growth is never a reputation-killing call!