In our series of recent blogs we mentioned that prudent taxpayers should prepare themselves for laws that may make it into next year: the one pending for 2013 and the one which may survive the current partisan Congress this year.

Use these ideas to plan your strategy:

• Consider accelerating capital gains and dividend income into 2010 to enjoy the lower rates. If you are in the 15% bracket or below, this income could be taken tax free, so pay attention.
• Deductions can be deferred to future years when the tax rate may make them more valuable to you, but remember that the returning phase-out of itemized deductions may limit your benefit.
• A Roth IRA rollover this year (see our Blog archive) could lower future adjusted gross income (AGI) and taxable income to keep you under the investment surtax.
• Think about increasing pension and IRA contributions over the next few years to reduce the amount of income subject to the wealth taxes. These income sources will be taxed upon withdrawal in future years, but the distributions will not be subject to the investment income tax of 3.8%.
• Study the practicality of installment sales to lower the annual capital gain income in a single year, thus moving it below the investment income tax.
• Weigh the option of tax exempt income, such as municipal bonds.
• Invest in life insurance contracts that could produce tax-free income at death. Lifetime needs for income can be provided for by borrowing against the policy.
• The popularity of the S corporation may come to an end if the proposed surtax gets through this year, so planning for an organizational tax change may need to be considered.

Determining the best plan for your situation requires a careful understanding of where you are and where you are going within the evolution of the tax law changes.

We’re here to help you navigate these choppy waters, so give us a call, 904-396-5400, or Email, office@CPAsite.com, and we’ll help you find the smoothest sailing possible.

Filed under: Tax by Mark Patrick