Year-end tax planning is challenging enough in normal times.
by Rick Telberg
At Large
With the wild swings in the markets and in clients’ personal economic lives, CPAs face an especially complex pre-season busy season of consultations. And they need to hurry because some opportunities expire at the end of this month.
The list of tax planning opportunities and complications is a long one this year. We started it last week here in the AICPA Insiders with “CPAs’ Top Year-End Tax Tips for Trying Times.” New ideas and suggestions are still pouring in from tax professionals across the country. Send your ideas here.
“High-net-worth and high-income earners typically find that year-end planning can result in significant tax savings. This is especially so this year,” says Robert Spielman, CPA, LLM, tax partner, Marcum LLP, with offices from New York to Florida. “Many tax benefits are being phased out or disappear in 2010. Also, tax rates may increase in 2010, and no one knows what will happen to the current 15-percent tax rate on qualified dividends and long-term capital gains.”
Today we focus on a few ideas related to IRAs and investment issues. We’re simplifying here for space. So, as every professional knows, you should do your own homework before deploying any of these strategies on your own.
Spielman starts his list of “things to consider” with:
1. Plan ahead to convert IRAs and qualified plans to Roth IRA accounts in 2010. If you believe capital-gains rates are likely to increase, then take such gains now and defer losses to later years when they may become more valuable.
2. Self-employed can create pension plans before year-end. Contributions can be made that reduce 2009 taxable income. Again, if you believe rates are going up, accelerate income into 2009, take out extra retirement plan payments, then fund your plans in 2010 and take deductions at higher effective tax rates.
3. And, be sure to take into account any state tax increases for 2010 as you do your planning.
Patricia A. Thompson, CPA, at Piccerelli, Gilstein & Co., in Providence, R.I., and a member of the AICPA Tax Executive Committee, offers up:
4. Minimum distributions from retirement plans are not required in 2009. Some clients may have received minimum distribution earlier in the year unaware of the elimination of the minimum distribution requirement. Maybe the financial institution had special procedures in place to require the client to take action not to have the minimum distribution for 2009. Clients can rollover into an IRA or other retirement account the minimum distribution received earlier this year. The rollover must be completed by Dec. 1, 2009 (or within 60 days of the receipt of the distribution, whichever is later).
5. Multiple beneficiaries on an IRA may be problematic for the beneficiaries. The minimum distributions are calculated on the life expectancy of the oldest beneficiary. The beneficiaries may not have the same investment philosophy. Beneficiaries may not agree on when to take additional distributions from the IRA. To eliminate these issues the beneficiaries can split up the IRA into separate accounts for each of the beneficiaries. The beneficiaries have until Dec. 31, 2009, to split up an IRA inherited from someone passing away in 2008. The minimum distribution for 2009 is not an issue since there are no required minimum distributions for 2009.
6. For 2010, the $100,000 adjusted gross income (AGI) limit on converting a traditional IRA to a Roth IRA is eliminated. To take advantage of it your client may want to consider making an IRA contribution this year even if you are not able to deduct it. Then next year convert the traditional IRA to a Roth IRA and only pay taxes on the IRA earnings. The taxes on these earnings won’t be taxed until 2011 and 2012 but your client may consider paying the taxes in 2010 while the tax brackets are expected to be lower than in 2011 and beyond.
James Toto, CPA, senior manager, Weiser LLP, with offices in New Jersey and New York, says:
7. IRAs can be powerful planning tools, but the answer is not always the same for everyone. Depending on your income level and age, it may make sense to draw funds from an IRA even if you do not have to or convert to a Roth. If you have a net operating loss (NOL) or no other taxable income, it may make sense to take the money out now, taking advantage of a low or zero tax. Also, 2009 is the last year you can make a Qualified Charitable Distribution.
