As another year comes to a close, you will have the chance to make many decisions that affect your financial well-being in the year ahead. In particular, these last months are the last chance that you will have for moves that will alter your 2009 tax obligations. This year’s financial market roller coaster may make this unusually complicated for some taxpayers.
• Should you take additional capital gains or losses? As you review your investment activity for 2009, note any additional sales that seem appropriate from an investment standpoint—then check with your
tax advisor. You’ll want to make your remaining investment moves with maximum tax efficiency, offsetting gains and losses as appropriate. Still, tax effects are not more important than underlying investment fundamentals.
• Have you drifted from your asset allocation plan? For example, if your portfolio has become underweighted to equities, you may want to consider rebalancing to restore your exposure to upside potential. Or if stocks have too large a share, rebalancing will restore your risk parameters.
• Should you be planning to convert to a Roth IRA? The $100,000 income cap on conversions of traditional IRAs to the potentially tax-free Roth IRA approach comes off on January 1, 2010. There is a big tax cost for the conversion, balanced by some important long-term benefits. With asset values well off their highs, 2010 may prove an important window of opportunity for conversions.
• Should you make year-end gifts? One of the easiest tools to use for cutting estate taxes is the annual $13,000 gift, which is excluded from the gift tax. You may make gifts of up to $13,000 to as many people as you like, and married couples may make gifts of $26,000. To avoid tax ambiguities, gift checks should be deposited before year-end.
• Have your family circumstances changed? If you have changed your marital status, or if you have become a parent or grandparent, it’s time for a review of your will and your estate plans. Keeping your will current is an important step, one many people neglect. You would be surprised at how many wills we see that are more than ten years old, some naming as beneficiaries people who already have died.
• Are you an estate tax target? This year the exemption from the federal estat tax is $3.5 million, but many states impose death taxes (estate or inheritance, or both) on smaller estates. Next year, under current law, the federal estate tax is suspended, followed by a $1 million exemption and sharply higher tax rates in 2011. If your assets put you anywhere near this tax neighborhood, you’ll want to keep in close contact with your estate planner for the next several years.
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The busier you are, the more necessary it is that you take time for regular reviews of your investment and financial planning. We’d be pleased to work with your tax and legal advisers to help you stay on top of things. Call on us!
(November 2009)
© 2009 M.A. Co. All rights reserved.
