Year-end tax planning for 2009 presents a unique set of challenges, in addition to reprising some traditional ones. Many more tax breaks this year are temporary, either sunsetting in 2009 or 2010. Congress, in 11th-hour brinkmanship, is not helping to signal in advance which provisions will be extended. Further, the conventional tax advice of accelerating deductions and deferring income may not sit well if deferring income runs the risk of not receiving it at all in an uncertain economy ... or receiving it when tax rates go higher.
On the other side of the ledger is the increased pressure on tax advisors to add to a taxpayer's bottom line through tax savings while tax advisors themselves are covering unfamiliar ground, refocusing on how to maximize the use of tax losses when income is not as plentiful for sheltering.
Starting year-end tax planning early in October can yield dividends, as can remaining adaptable to any change in the business environment, or tax legislation, between now and December 31. Here are some issues to keep you busy.
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EXPIRATION DATES
Many more tax benefits seem to be perishable items, requiring use before an expiration date. For 2009 year-end tax planning, one eye should be kept of provisions expiring in 2009 or 2010, and the other on provisions that may be set to begin in 2010 or 2011.
PROVISIONS ENDING IN 2009
Some provisions officially end in 2009 and, therefore, require immediate action or at least careful consideration. Of those, a handful are likely candidates for extension by Congress into 2010. Of the latter group, any planning that assumes an extension should be revisited closer to year's end "just in case." That group includes:
* Extension of the estate tax, with an exemption amount of $3.5 million;
* Extension of the individual Alternative Minimum Tax "patch," likely at current levels but possibly passed retroactively in 2010; and,
* Extension of the R&D credit, a perennial favorite to be made permanent but again in danger of only an extension because of revenue costs.
Provisions that are expiring in 2009 and likely not to be extended, at least in their present forms, include:
* Longer NOL carrybacks. Eligible small businesses can elect to use an extended three-, four- or five-year carryback period for 2008 net operating losses. For many eligible taxpayers, the deadline for making the election has already passed. Although talk abounds over adding 2009 NOLs to the special carryback election and even broadening it to include more businesses, the lost revenues to the government that these extensions would require make their success on Capitol Hill a tough sell.
* Unemployment compensation. Up to $2,400 of unemployment compensation is excludable from gross income for 2009. This exclusion's fate for 2010 remains uncertain.
* New car purchases. Most individuals who purchase qualified new motor vehicles before 2010 can deduct the general sales tax (based on up to $49,500 of the purchase price of any vehicle) either as an additional standard deduction or as an itemized deduction. With Cash for Clunkers stealing much of the thunder from this tax break (and much of the revenue for further assistance to the auto industry), extension into 2010 is unlikely. Those rushing to beat this deadline should remember that they must take delivery of the vehicle by Dec. 31, 2009, to be entitled to the deduction; a contract of sale is not enough.
