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Accountants, lawyers working on year-end planning with clients

Accountants and attorneys are providing end-of-year planning suggestions to clients as 2008 draws to a close.

Gulfport CPA Jerry Levens says taxpayers should watch the outcome of the Presidential election. “Both candidates have made comments about tax rate changes,” he said. “So the successful candidate’s tax policy could be legislated sometime in 2009. This may make 2008 year-end transaction planning even more crucial than in years past.”

A partner in the Alexander, Van Loon, Sloan, Levens, Favre accounting firm, he recently sent letters to clients reminding them there is still time to reduce the 2008 tax bill and plan ahead for 2009. One way is to remember that many tax benefits are tied to or limited by adjusted gross income (AGI). Therefore, a key aspect of tax planning is to estimate both 2008 and 2009 adjusted gross income.

“Also, when considering whether to accelerate or defer income or deductions, you should be aware of the impact this action may have on your AGI and your ability to maximize itemized deductions that are tied to AGI,” he said. “Your 2007 tax return and your 2008 pay stubs and other income and deduction related materials are a good starting point for estimating your AGI.”

Levens notes that tax-saving opportunities continue for retirement planning due to the availability of Roth IRAs, changes that make regular IRAs more attractive and other retirement savings incentives.

Paul Varner, tax practice group leader with the Jackson law firm of Butler, Snow, Cannada, O’Mara and Stevens, says the federal income tax on capital gains and on dividends may be increased in 2009, depending on the outcome of the election.

“Persons who are considering closing a transaction in 2009 that will trigger capital gains should consider accelerating that transaction so the gain is recognized in 2008,” he said. “Also, persons who own stock in closely held C corporations that have excess retained earnings should consider causing the corporation to declare a dividend in 2008 while the rates are at their current low level.”

Wondering whether or not tax rates will go up, stay the same or go down next year is also on Margaret A. Johnson’s mind. She’s an attorney with the firm of Watkins, Ludlam, Winter and Stennis.

“The answer is largely political and certainly is unique to each person, but it is important to consider when making last minute plans for this tax year,” she said. “If you feel rates will be higher next year, you will want to accelerate income, if you have the opportunity, to avoid next year’s higher rate. Conversely, if you feel rates will go down, you will want to accelerate deductions to reduce the tax imposed this year at a higher rate.”

Johnson says there are a number of ways to accelerate deductions, including: charitable donations made before the end of the year; contributions to health savings accounts, which can be made up until April 15; and, contributions to qualified retirement accounts, which must be made before the end of the year. Taxpayers concerned with estate planning and gifting should remember that each taxpayer is entitled to give up to $12,000 to recipients each year with that amount excluded from the gift tax.

“Another method for reducing tax is by offsetting capital gains by selling other assets at a loss. In this market, that should be relatively easy,” she said. “Any taxpayer with a flexible spending account should keep in mind that money held in such an account does not roll over from year to year. It must be used before December 31 or it disappears.”

Members of the HORNE accounting firm are also busy with year-end planning. John Scott, the firm’s tax director, reminds that individuals always have to look at their tax situation from a two-year period.

“Both their current and next year’s projections are relevant for year-end tax planning,” he said. “Taxpayers expecting to be in the same or lower tax bracket in 2009 should consider deferring income until next year and accelerating deductible expenses in 2008. Alternatively, if a substantial increase in income is anticipated in 2009, income should be accelerated in 2008 and deductions deferred until next year.”

Another tip is to consider bunching deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one year or whether the adjusted gross income limits for medical or miscellaneous itemized deductions may be more easily met.

Buck Coats, tax partner with HORNE, says those principal-residence homeowners who had part of their mortgage debt forgiven as part of a workout or foreclosure have been spared having to pay income tax on that forgiven income, up to $2 million.

“The Mortgage Indebtedness Relief Act of 2007 first applied this tax-free treatment to debt forgiveness taking place from 2007 through 2009,” he said. “The Emergency Economic Stabilization Act of 2008 extended it through 2012.”

For businesses, net operating losses will be something that many more, unfortunately, will need to become familiar with during the present economic downturn, according to Bob Bunting, tax senior manager with HORNE.

“Generally, these losses can be carried back two years and carried forward 20 years, the carryover period to offset either previously taxed income or income not yet earned by the business,” he said. “Businesses can take an additional 50% bonus depreciation for qualifying property acquired and placed in service during 2008.”

He adds that most small businesses are eligible to immediately deduct equipment purchases that otherwise would have to be depreciated over a number of years. Beginning in 2008, the deductible amount is limited to $250,000, which begins to reduce when total new asset additions exceed $800,000.

“After 2008, the expensing limits revert to prior inflation-adjusted caps, anticipated for 2009 to be $133,000 for the deduction limit and $530,000 for the start of the phase out,” Bunting said. “Businesses likely to make purchases of qualifying property soon should consider at least maximizing amounts for 2008.”

Contact MBJ contributing writer Lynn Lofton at llofton656@aol.com.


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