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The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| Year End Moves for 2010 |
We don’t know what is going to happen to tax rates in 2011, but for those seeking to manage their taxes for 2010, here
are several planning strategies to keep in mind.
1. Accelerate or defer income. If you have the ability to control the timing of year-end bonuses, consider the
consequences of taking the payment in 2010 or 2011. You may also want to use a bonus payment to increase your Federal tax
withheld for the year in order to avoid an underpayment penalty. The bonus must be paid by December 31 in order for it to be
included in 2010. For accrual-basis corporate taxpayers, employee bonuses may be deducted for 2010 as long as they are paid
by March 15, 2011.
2. Accelerate or defer income (part II). If you operate your own cash-basis business, you can push income off into
2011 by waiting to send invoices until late in the year. That way, payment will not be received until 2011, and so income will be
deferred until that year. Another strategy is to pay all invoices from your suppliers in order to maximize deductions. You can also
prepay expenses for up to one year by sending out payments in December. For example, you could prepay all of 2011’s rent by
sending a check before December 31. Watch this strategy, however – the taxpayer receiving your payment may not appreciate
having to pick up this extra income in 2010.
3. Watch your Required Minimum Distributions (RMD’s). Individuals over age 70-1/2 must take a RMD in 2010;
Congress has not extended the waiver that was in place in 2009. Make sure your RMD is calculated based on the balance in all
your IRA accounts. For example, if your broker offers to do the RMD calculation based on the investment accounts under his
control, make sure they also know about the certificate of deposit accounts held in your bank. The penalty for failure to
calculate the correct amount is 50% of the shortfall, so make sure you are getting proper assistance and are doing the
calculation correctly.
4. Accelerate tax deductions. If you think you will be in the same or a higher tax bracket in 2010 versus 2011, your tax
deduction will be worth more (at the very least, based on the time value of money). Consider prepaying your state or local tax
estimates by December 31, rather than waiting until the January 15 due date. Make your 2011 charitable contributions in 2010.
Bunch your medical expense deductions or miscellaneous itemized deductions in one year to get a larger allowable deduction
due to the phase-out rules.
5. Consider bunching strategies. If you’re at the point where you’re close to using the standard deduction in lieu of
itemizing, you may benefit by bunching your eligible itemized deductions into one year, then using the standard deduction the
following year. The easiest deductions to manage under this strategy are contributions, real estate taxes, state and local income
tax estimates, and medical expenses. Contact me to determine if this strategy might work for you.
6. Make sure your tax estimates are covered. To avoid Federal underpayment penalties, you must have 90% of your
2010 tax paid in, or 100% of 2009’s total tax (110% of 2009 if taxable income is over $150,000). Increase your Federal
withholding on any remaining salary and/or bonus payments for 2010. Another strategy is to borrow from your IRA before
December 31. Twenty percent of the amount withdrawn must be withheld as an estimated tax on the distribution. Repay the
gross amount of the withdrawal within 60 days. Result: no taxable income on the withdrawal, and the 20% withheld counts as
estimated tax paid during 2010.
7. Consider capital gains and losses. Many investors have capital losses in 2010, but those losses will be limited to a
net of $3,000. Consider selling some stocks that have gains to offset these losses; the gains will not be taxed. If you like the
stocks you are selling, you can immediately repurchase them for future appreciation; there is no 30-day restriction on
repurchasing stocks sold at a gain. At the same time, if you have capital gains, consider selling off some losers to reduce the
amount of gains tax you will pay.
8. Get the most out of your charitable contributions. If you want to make contributions before year-end, consider
making gifts of appreciated stock in lieu of giving cash. You avoid the capital gains and state taxes on sale, and you get the full
fair market value for your donation. This is an especially beneficial strategy for those unable to itemize their deductions,
because there is no additional tax savings for the contribution, but the sale escapes taxation. But if your investment could be
sold at a loss, sell the investment first to get the loss deduction, then make the charitable contribution. Finally, be sure to record
your gifts of clothing, household goods, etc. given to Goodwill, Salvation Army and other charities. Value the contributions at
their thrift shop value, using tools such as the valuation guide at http://www.salvationarmysouth.org/valueguide.htm.
9. Make retirement contributions. There’s no time like the present to begin saving for retirement. Use year-end
bonuses to add to your 2010 401(k) plan contribution. Amounts contributed while you’re in your 20’s can easily compound 3 or
4 times before you reach retirement age. Self-employed individuals have until April 15, 2011 to contribute to their retirement
plan, or until October 15 if an extension is filed. IRA contributions for 2010 can be made as late as April 15.
10. Track employee business expenses. Unreimbursed employee business expenses may be claimed as a
miscellaneous itemized deduction if you are able to itemize. But first, see if you have the opportunity to submit those expenses
for reimbursement from your employer. Each dollar reimbursed to you is worth $1, whereas claiming the item as a business
expense only yields the tax rate savings. But, if reimbursement is not an option, track your business mileage, business meals,
office supplies, customer gifts, and so on. Please give me a call if you have questions about what may be claimed or the record
keeping necessary to support the deduction.
In the remaining time before December 31, take a few minutes to consider the opportunities you may have to employ these and
other strategies. The money you save will be your own!
are several planning strategies to keep in mind.
1. Accelerate or defer income. If you have the ability to control the timing of year-end bonuses, consider the
consequences of taking the payment in 2010 or 2011. You may also want to use a bonus payment to increase your Federal tax
withheld for the year in order to avoid an underpayment penalty. The bonus must be paid by December 31 in order for it to be
included in 2010. For accrual-basis corporate taxpayers, employee bonuses may be deducted for 2010 as long as they are paid
by March 15, 2011.
2. Accelerate or defer income (part II). If you operate your own cash-basis business, you can push income off into
2011 by waiting to send invoices until late in the year. That way, payment will not be received until 2011, and so income will be
deferred until that year. Another strategy is to pay all invoices from your suppliers in order to maximize deductions. You can also
prepay expenses for up to one year by sending out payments in December. For example, you could prepay all of 2011’s rent by
sending a check before December 31. Watch this strategy, however – the taxpayer receiving your payment may not appreciate
having to pick up this extra income in 2010.
3. Watch your Required Minimum Distributions (RMD’s). Individuals over age 70-1/2 must take a RMD in 2010;
Congress has not extended the waiver that was in place in 2009. Make sure your RMD is calculated based on the balance in all
your IRA accounts. For example, if your broker offers to do the RMD calculation based on the investment accounts under his
control, make sure they also know about the certificate of deposit accounts held in your bank. The penalty for failure to
calculate the correct amount is 50% of the shortfall, so make sure you are getting proper assistance and are doing the
calculation correctly.
4. Accelerate tax deductions. If you think you will be in the same or a higher tax bracket in 2010 versus 2011, your tax
deduction will be worth more (at the very least, based on the time value of money). Consider prepaying your state or local tax
estimates by December 31, rather than waiting until the January 15 due date. Make your 2011 charitable contributions in 2010.
Bunch your medical expense deductions or miscellaneous itemized deductions in one year to get a larger allowable deduction
due to the phase-out rules.
5. Consider bunching strategies. If you’re at the point where you’re close to using the standard deduction in lieu of
itemizing, you may benefit by bunching your eligible itemized deductions into one year, then using the standard deduction the
following year. The easiest deductions to manage under this strategy are contributions, real estate taxes, state and local income
tax estimates, and medical expenses. Contact me to determine if this strategy might work for you.
6. Make sure your tax estimates are covered. To avoid Federal underpayment penalties, you must have 90% of your
2010 tax paid in, or 100% of 2009’s total tax (110% of 2009 if taxable income is over $150,000). Increase your Federal
withholding on any remaining salary and/or bonus payments for 2010. Another strategy is to borrow from your IRA before
December 31. Twenty percent of the amount withdrawn must be withheld as an estimated tax on the distribution. Repay the
gross amount of the withdrawal within 60 days. Result: no taxable income on the withdrawal, and the 20% withheld counts as
estimated tax paid during 2010.
7. Consider capital gains and losses. Many investors have capital losses in 2010, but those losses will be limited to a
net of $3,000. Consider selling some stocks that have gains to offset these losses; the gains will not be taxed. If you like the
stocks you are selling, you can immediately repurchase them for future appreciation; there is no 30-day restriction on
repurchasing stocks sold at a gain. At the same time, if you have capital gains, consider selling off some losers to reduce the
amount of gains tax you will pay.
8. Get the most out of your charitable contributions. If you want to make contributions before year-end, consider
making gifts of appreciated stock in lieu of giving cash. You avoid the capital gains and state taxes on sale, and you get the full
fair market value for your donation. This is an especially beneficial strategy for those unable to itemize their deductions,
because there is no additional tax savings for the contribution, but the sale escapes taxation. But if your investment could be
sold at a loss, sell the investment first to get the loss deduction, then make the charitable contribution. Finally, be sure to record
your gifts of clothing, household goods, etc. given to Goodwill, Salvation Army and other charities. Value the contributions at
their thrift shop value, using tools such as the valuation guide at http://www.salvationarmysouth.org/valueguide.htm.
9. Make retirement contributions. There’s no time like the present to begin saving for retirement. Use year-end
bonuses to add to your 2010 401(k) plan contribution. Amounts contributed while you’re in your 20’s can easily compound 3 or
4 times before you reach retirement age. Self-employed individuals have until April 15, 2011 to contribute to their retirement
plan, or until October 15 if an extension is filed. IRA contributions for 2010 can be made as late as April 15.
10. Track employee business expenses. Unreimbursed employee business expenses may be claimed as a
miscellaneous itemized deduction if you are able to itemize. But first, see if you have the opportunity to submit those expenses
for reimbursement from your employer. Each dollar reimbursed to you is worth $1, whereas claiming the item as a business
expense only yields the tax rate savings. But, if reimbursement is not an option, track your business mileage, business meals,
office supplies, customer gifts, and so on. Please give me a call if you have questions about what may be claimed or the record
keeping necessary to support the deduction.
In the remaining time before December 31, take a few minutes to consider the opportunities you may have to employ these and
other strategies. The money you save will be your own!
DECEMBER 2010 NEWSLETTER ARTICLE
| Robert A. Romako, CPA 220 Haldeman Avenue New Cumberland, PA 717.774.3047 |