TAX NEWS - June 2010

Dallas tax planning

Given the current state of government deficits and the impact of the health care overhaul, you should pay particular attention to tax planning for this year and into the future.

"For the first time in many years we have a situation in which we know that tax rates will be higher next year, as a result of the expiration of the Bush tax cuts," said Hunter Nibert, partner at TravisWolff, a Dallas accounting firm.

"On top of this, we have increased Medicare taxes on both earned and unearned income for some folks starting in 2013. Plus many are concerned that Congress may generate additional tax increases."

The known tax increases for next year override traditional tax-planning advice, which is to defer income into next year and to accelerate deductions into the current year, he said.

"The common practice of having your employer delay the payment of your year-end bonus into next year – which usually makes sense – might be the wrong thing to do in 2010," Nibert said.

Maxing out contributions to your retirement plans will be much more attractive, he said, because "higher tax rates will make the current deduction for contributions to these vehicles more valuable."

Expected higher tax rates on dividends and capital gains warrant a decision on whether you should sell some investments.

"Any sales due to a loss of confidence in the investment – as opposed to market conditions – contemplated within the next 18 months would be taxed at a lower rate if done by the end of this year," said James Smith, managing director at Smith, Jackson, Boyer & Bovard PLLC, a Dallas accounting firm.