Happy New Year! As you start to prepare for the 2008 filing season. I encourage you to also look ahead and start thinking about some tax planning opportunities that may be applicable to you in 2009.
1. Low Capital Gain and Dividends Rates
It is a good time to take advantage of the low long term capital gain and dividend rates. Currently, taxpayers in the 10 to 15 percent tax brackets benefit from a long term capital gain rate of zero percent. Taxpayers in higher tax brackets are subject to a maximum rate of 15 percent. However, with the current economic crisis these rates will most likely increase in the near future.
- First Time Home Buyers Credit
If you are looking to purchase your first home, you might want to consider the first time home buyers credit available for purchases prior to June 30, 2009. This credit operates much like a 15 year interest free loan. It is a temporary, refundable tax credit up to a maximum of $7,500 for married filing joint taxpayers.
3. Reduced Home Sale Exclusion
If you own a vacation home or rental property and intend to convert the property into your principal residence to take advantage of the home sale exclusion rules, than this newly enacted legislation will impact you. Beginning in 2009 homeowners will not be able to exclude gain from the sale of a principal residence attributable to periods that the home was not used a primary residence.
- Retirement Accounts
2008 has been a rough year for many retirement savings accounts. If your income is less than $100,000 you might want to consider converting a traditional IRA in to a Roth IRA. When you do the conversion you must pay income tax on the amount you are converting. However, you do not have to pay tax when you go to take the money out. If your income currently prohibits the conversion get ready for 2010 when the income restrictions on conversions are set to disappear.
Also, for seniors whose retirement savings have been hit hard by the by the stock market collapse, some relief is available in 2009. New legislation allows retirees to suspend required minimum distributions from 401(k)s and IRAs for 2009.
- Extension of the Qualified IRA Charitable Distribution
Taxpayers who are age 70 ½ and older can transfer up to $100,000 from their IRA to a qualified charity and treat it as a tax-free distribution (not deductible as a charitable contribution). This is especially advantageous for taxpayers who do not itemize. Also depending on your income level, it may reduce the taxability of your social security benefits.
- Education Planning
With the ever rising education costs, it is never too early to start saving for your child’s higher education. Consider opening a 529 plan. Your investment grows tax-deferred, and distributions to pay for college costs come out tax-free. These plans allow large contributions, anyone can contribute to the plan and there are no income limits imposed on the contributor. Also, if you are an Oregon filer, and choose an Oregon plan, you may be eligible to deduct contributions up to $4,000 on your Oregon return.
- Health Care Costs
With health care costs on the rise if your employer offers a flexible spending arrangement (FSA) consider using it to pay your out of pocket medical expenses. The amount you contribute to your FSA is exempt from federal, state, FICA and medicare taxes. If an FSA account does not apply to you but you have high deductible health insurance premiums you might want to consider a health savings account (HSA). Contributions to the plan are an “above the line” deduction and distributions to pay qualified medical expenses are not taxable.
I wish you all the best for a happy and prosperous New Year! If you have any questions, please don’t hesitate to contact me.