Last minute tips for 2009 year-end tax planning

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By Phillip Levsky, CPA 

2009 has been a difficult year with the current economic downturn. Although there are signs of recovery, it is assumed by many that full recovery is still some years away. In spite of that, areas of the current Tax Code can help ease the impact of the current economic downturn for taxpayers. The following tried and true tax planning techniques, with some new twists, along with new opportunities and tax law changes, can help almost every taxpayer.

Traditional Planning


Keeping in mind the uncertain future of the individual income tax rates, consider income and deduction shifting and planning strategies with a twist this year. Using the methods below, you can time your income and deductions so that your taxable income is about even for 2009 and 2010, with the desired result of keeping the tax brackets the same for both years.

·         Postpone income until after year-end by delaying asset sales.

·         Make planned charitable donations before year-end. 

·         Accelerate or defer medical expenses to a year in which such expense will be over the 7.5% adjusted gross income limitation.

·         Accelerate or defer miscellaneous itemized deductions to a year in which such expense will be over the 2% adjusted gross income limitation.

·         Accelerate expenses by prepaying state income tax that is otherwise due shortly after year-end, keeping in mind that the Alternative Minimum Tax (“AMT”) may eliminate any benefit.

Portfolio Timing:

·         With the volatile nature of the stock market, many taxpayers will have excess capital losses from 2008. Special emphasis should be given now to review the current year investment activities (gains and losses) to take steps necessary to minimize capital gains and maximize the benefits of capital losses.

Retirement Planning:

·         Maximize annual contributions to your retirement plan accounts. Use this technique to reduce your adjusted gross income (AGI), which in turn increases items affected by adjusted gross income limitations.

New Opportunities and Changes for 2009 and 2010


First-Time Homebuyer Credit:

·         Qualified taxpayers can claim an $8,000 refundable credit.  The credit has been extended to binding contracts entered into before May 1, 2010 and closed before July 1, 2010 with increased income limitations. In addition, qualified current homeowner taxpayers can claim a $6,500 refundable credit.

Retirement Planning:

·         Individuals who are not active participants in an employer pension plan may make deductible contributions to a traditional IRA, subject to adjusted gross income limitations.

·         Starting in 2010, the $100,000 income limit on Roth IRA conversion is repealed.  Generally, the conversion is a taxable distribution, not subject to an early withdrawal penalty. Taxpayers will have the option of deferring the tax by spreading the income ratably over 2011 and 2012.

·         Taxpayers may waive taking their 2009 required minimum distribution.

AMT Patch:

·         For 2009, AMT exemption amounts are raised again to help shield most middle-income taxpayers from the reach of the AMT.


Income for forgiveness of Mortgage indebtedness:

·         Tax-free treatment is available on debt forgiveness income occurring through 2012 for those principal-residence homeowners who had part of their mortgage debt forgiven as part of a workout or foreclosure.


American Opportunity Tax Credit (Hope Credit and Lifetime Learning Credit):

·         The maximum Hope Credit for 2009 is $2,500 (100 percent of the first $2,000 of eligible higher education expenses plus 25 percent of the next $2,000) for qualified tuition and fees paid.  The credit also has been expanded to the first four years of college and 40 percent of the credit is refundable.

Educator Expense:


·         The $250 deduction for educators is extended to 2009.


Itemized Deduction:

·         The ability to deduct state and local general sales tax in lieu of state and local income tax was reinstated in 2008 and extended to 2009.  In addition, non-itemizers are now allowed a limited deduction for state and local real estate taxes for 2009.

·         The addition of a motor vehicle sales tax deduction is available for itemizers and non-itemizers on new automobiles purchased between 2/17/09 and 12/31/09, subject to AGI limitations.


About the author:

Phillip Levsky, CPA, senior tax manager at FGMK, LLC, brings over 25 years of tax experience with large national and local firms in servicing closely held businesses in Real Estate, Manufacturing, Retail, Distributions, Service Industries,  and High-Net-Worth individuals.  Levsky is regularly involved in providing tax consulting, planning, and compliance services.  In addition to, representing businesses and individuals in IRS tax audits. Phillip is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society, where he is currently serving on the ICPAS Individual Taxation and Taxation Procedures and Practices Committees.


Disclaimer:  This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax, or legal advice or is performing any legal, accounting, or other professional service.  If accounting, tax, or legal advice or other expert assistance is required, the services of a competent professional person should be sought. 

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