Year-End Tax Planning Strategies for Individuals
- Wages paid to children under 18 working for parents unincorporated business (sole-prop or partnership only) is not subject to FICA tax.
- $5,450 of a child’s wages is offset by standard deduction resulting in no income tax in 2008 ($5,700 2009).
- Kiddie Tax: Applies to unearned income in excess of $1,800 ($1,900 2009) up to age 24 if the child is a full-time student.
- Employ children in parent’s business: 1) “Earned income” is not subject to the “kiddie tax,” and 2) Make a Roth IRA contribution.
- Consider setting up and contributing into a Section 529 college savings plan.
- Capital gains tax rate of 0% for 2008 through 2010 for the 15% and 10% tax brackets.
- Roth IRA contributions now have higher phase-outs, $101,000 single and $159,000 joint.
- Consider “catch-up” contributions to retirement plans for those 50 or older.
- Mortgage debt relief: Taxpayers can exclude up to $2 million of mortgage debt forgiveness after 1/1/07 and before 1/1/2012.
- Credits for fuel efficient vehicles: Fuel economy credit and Conservation credit, through 2010 but ineligible once the manufacturer sells 60,000 cars.
- Credit for first time homebuyers: After 4/8/08 and before 7/1/09, refundable credit up to the lesser of 10% of the purchase price or $7,500, phases out, the tax is recaptured over the life of the loan.
- Home sale exclusion: For sales after 2007, the full $500K exclusion is permitted to the surviving spouse for two years after death of the other spouse.
- Charitable contributions: All gifts require a receipt, non-cash gifts must be considered in “good” condition.
- Charitable contributions of vehicles: Deduction is limited to the sales proceeds for vehicles valued at more than $500.
- Property tax deduction for non-itemizers: Beginning in 2008, capped at $500 single and $1,000 married filing joint, claimed as an additional standard deduction.
- Ohio residency: Non-resident permitted 182 contact periods with the state, should file an Ohio Affidavit of Residency.
- Estate & gift: $12,000 ($13,000 2009) per person per donee requires no reporting, unlimited tax free gifting for direct payments of educational and medical expenses.
- Estate planning: Creation of A/B or “Credit Shelter Trusts.” Fund the trust if one has been established. Transfer the assets into the trust and update their title of ownership.
- Use of Irrevocable Life Insurance Trust to shelter proceeds from estate: There is a three year look back for existing policies, but not for new policies.
- Use of family limited partnerships to transfer wealth: Allows for the transfer of assets to children or others at a significant discount.
Note: This is not a complete list of all individual tax planning ideas. Please give us a call to discuss an idea in greater depth or to inquire about an idea not on this list.
Disclaimer: This document represents a general overview of recent tax developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to your specific situation. Any tax information contained in the body of this narrative was not intended or written to be used, and cannot be used, by the recipient for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code or provisions of applicable state or local law.