Changes in tax rules open the door to moves that may reduce your tax bill.
As Americans continue to weather what most financial experts view as the worst economy since World War II, effective tax planning has never been more important. Any successful year-end strategy should involve maximizing results for both tax years 2008 and 2009. Crafting that plan will test your assumptions regarding future income, the direction of financial markets, and possible changes in the federal tax code.
The treatment of all tax issues is complicated and individual. So before finalizing any critical tax decisions this year, it's best to review them with a tax accountant.
Some year-end topics to consider are:
The Alternative Minimum Tax (AMT) has become the most feared status, initially created by Congress to target a small group of high-income people who were not paying any taxes. It has rapidly expanded to include an increasingly large swath of individuals in high tax areas such as California, New York, and New Jersey, affecting people who earn between $100,000 and $500,000 annually.
If you determine that you are subject to AMT in 2008, accelerate ordinary and short-term capital gains income into this year, and wait until 2009 to make any moves – for example, charitable contributions – that will result in tax deductions. Remember that state and local income taxes, real estate taxes, and tax-advisory expenses are not deductible under the AMT. This year, Congress put a patch on the AMT to reduce the number of people affected. AMT exceptions for 2008 apply to single filers with adjusted gross incomes (AGI) of $46,200 and $69,950 for those married filing jointly.
Pace your income and deductions
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