Dear Friends of Our Firm,

It’s difficult to formulate a year-end plan in the current political environment. Nevertheless, following are seven sensible tax strategies for individual taxpayers in 2010. Caution: Tax rates are scheduled to go up next year, so consider the long-term implications of any year-end moves.

1. Generate energy tax credits. If you install certain energy-saving devices, you may qualify for the “residential energy credit.” The credit for 2010 is 30% of qualified expenses up to a maximum credit amount of $1,500 (reduced by any credit claimed for 2009).

2. Audit-proof charitable gifts. A recent tax law change requires you to substantiate all monetary gifts to charity. Keep all the records required by the IRS now instead of trying to resurrect them at tax return time.

3. Harvest losses from securities sales to shelter previous capital gains. On the other hand, if you’re showing a net loss for the year, you may trigger some capital gains before year-end. The earlier losses can shelter later gains from taxes.

4. Have a child trigger capital gains. For 2008 through 2010, the normal 5% rate for individuals in the regular 10% and 15% tax brackets is reduced to a rock-bottom 0%. But don’t forget about potential “kiddie tax” complications.

5. Review alternative minimum tax (AMT) liability. You may be able to reduce or eliminate the damage by postponing tax preferences to 2011. However, if you definitely will pay the AMT in 2010, you might accelerate taxable income into this year if the extra income will be taxed at a lower rate than your normal rate.

6. Seek a tax underpayment shelter. To avoid an “estimated tax” penalty for an underpayment, meet one of these three safe-harbor rules.

  • Pay at least 90% of the current year’s tax liability.
  • Pay at least 100% of the prior year’s tax liability (110% if your AGI for that year exceeded $150,000).
  • Pay installments under a special annualized basis. This option is only available if you receive more income on a seasonal basis.

7. Sell real estate on the installment basis. As long as at least one payment is received in the year after the year of the sale, you’re taxed on just the portion of each payment attributable to the gain for each year, plus the interest.

These are only seven potential tax moves to make at the end of the year. Others may be appropriate for your situation. Contact our office at 562-868-6333 to discuss the possibilities.

Very truly yours,

Emil Estafanous, CPA

P.S.  Every situation is different. To develop a comprehensive year-end tax plan tailored to your particular circumstances, schedule a meeting by calling us at  562-868-6333.

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