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Taxes: How To Prepare For Uncertain
Future? Sell Gains ... Defer Expenses
November 11, 2011
 
By Kristin Delfau, EA
Delfau Tax & Financial Services
 
We are getting to the end of the year, which typically means year-end planning … so here is a “My Crystal Ball is Broken” report on what's ahead.
 
TAX CUTS EXPIRING?

Are the Bush tax cuts expiring at the end of 2010 or not?
 
This is the $64,000 question. No one really knows.
 
As tax professionals, we are hearing predictions all over the place:
  • Some say the lame duck Congress and President Obama will let them expire.
  • Others say that the tax cuts will be extended across the board.
  • Some say they will be extended only for those making less than $250K.
POLITICAL WILL
 
But really, it is going to depend on the political will of those currently in Congress to do something before the end of the year.

No one ever thought that 2010 would be allowed to be a year free of estate tax, but it happened because Congress was too busy fighting over the healthcare legislation to address it.
 
So the extension of the tax cuts (as well as the alternative minimum tax (AMT patch), if they are enacted, will most likely be last minute.
 
THE $250K MARK

What counts toward the $250K? What is going to happen?

If you are in that over-$250K range (or $200K if you are single), there are a few things you need to know.
 
The $250K target is not just your wages; it is $250K adjusted gross income (AGI).
 
Remember, AGI includes W-2 earnings as well as capital gains, dividends, pension, etc. MINUS items like alimony, SEP contributions, etc.
 
ALREADY PAY AMT?
 
That being said, if you are in this income range, you are probably also already paying some alternative minimum tax (AMT) as well.

Thus, a tax “increase” on those making $250K may not actually affect you that much, because you are already paying AMT, which is a higher amount than the regular tax rates would cost you.
 
If you are not sure if you are paying AMT, email me and I can let you know.
 
If I have totally confused you in this section, email me as well.
 
HOW TO PREPARE?

So what should you be doing to prepare for this unknown tax future?

I have been advising clients to accelerate their capital gains into 2010 when possible or prudent, because with the sunset of the Bush tax cuts, the capital gains tax is increasing, as well.
 
Thus, if you are sitting on a stock showing some hefty gains, it might make sense to sell it now.
 
At least you know what you pay now rather than waiting to see if capital gains rates are going to increase or not.
 
SELF-EMPLOYED?

If you own your own voice over or audio production business, or have self-employment income, you may want to consider deferring expenses until 2011, when you theoretically could be in a higher tax bracket.

Also, if you own your own home and you can choose if you pay your property tax bill in December or January, depending on your situation, it may make sense to wait until January to do so.

As soon as something actually happens (as opposed to just talk), I will let you know on VoiceOverXtra what Congress has decided.
 
ABOUT KRISTIN ...
 
Kristin Delfau is the president of Delfau Tax & Financial Services in Danbury, CT and the author of Turbo-Mom’s Guide to Saving Money Without Wasting Time (Aji, 2009; www.turbo-mom.com). She specializes in flat fee tax preparation and life insurance solutions for individuals.
 

 

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