1. CAVEAT: All planning recommendations are based upon the Tax Code as it exists today. Obviously, with a lame duck session predicted, it is altogether likely that there may very well be comprehensive tax reform coming out of Congress in the last month of the year, so please check with your tax advisor before taking any steps. Although it was before my time, in 1976 in a lame duck session, Congress passed one of the most comprehensive tax changes in history. So, it is not unprecedented. This is also not a covered opinion and cannot be used to avoid penalties for taxes.
2. DIVIDENDS AND CAPITAL GAINS: Unless a tax bill comes out of Congress dividend rates will increase from 15% to marginal rates and capital gains to 20%. That means that income sensitive stocks like utilities and “blue chips” will likely take a hit in value after the first of the year (or leading up to the end of the year). So, review these stock holdings with your tax advisor. Remember the 30 day rule, if you sell a stock to recognize a loss, you can’t buy it back for 30 days or the loss will be voided.
3. ALTERNATIVE MINIMUM TAXES: Unless Congress Acts, alternative minimum taxes will go up in 2011. That means that deductible items like state income taxes and real estate taxes will not be as useful in 2011. So, depending on your situation (and it really is a case by case basis), you might be better off making tax payments in 2010 and using the deduction in 2010.
4. PURCHASES: There will be some bonus depreciation and Section 179 added tax credits for business purchases in 2010.
5. STARTING A NEW BUSINESS: For those who start a new business in 2010 and sell it by 2012, there will be an unlimited exclusion for taxes. This only applies to Corporations. I suspect that the IRS will not allow LLC ‘s to convert to C corporations to get this benefit. But it might be something to watch.
6. GIFTS TO FAMILY MEMBERS: If Congress doesn’t change the law, next year the Estate and Gift tax exclusion will be $1 Million. This year the gift tax exclusion is $1 Million. Above $1 Million, gifts are taxable. But the rate for taxable gifts in 2010 is 35% in 2011 they go up to 45% at a minimum. So, if you have a person who is sick and might not make it too far into 2011, it might save money to incur a gift tax in 2010, than an estate tax in 2011 where rates are 55%. Again this should be reviewed to be done no earlier really than December 30 or 31.
7. DYING: As the law currently is written, if you’re worth more than $1 Million, it’s a good year to die. I understand that in Haiti, there is a voodoo cocktail administered by a voodoo priest made up of certain specific drugs. The creation of real life zombies began in the practice of Haiti and is linked to the practice of voodoo. Although magic is typically credited with the creation of a zombie, some very real drugs are used to cause the half-living state of the creatures.
The problem is that if you are left in the coffin, too long, you will suffer brain damage or death. Or the dose may not be perfect and you will die. So, this is not recommended. But would make for one heck of an estate tax case. When is a dead person, undead?
8. 2011 RECORDKEEPING: If you rent out real property and spend over $600 with any service provider, you will need to send them a 1099-MISC starting in 2011. So be sure and ask for their EIN or social security number so that you don’t have to try and get it in January, 2012. Always best to ask before you pay them than after you pay them.
9. CHRISTMAS SEASONAL HIRES: If you hire an employee for 60 days and 40 hours per week, you get an exemption for wages paid through 12/31/10, there is an exemption from Employer’s share of OASDI (6.2%). Employee must sign new W-11. Can’t take the Work Opportunity Credit as well.
10. SECTION 45E CREDIT: Starting in 2010, Employers get a partial credit for health insurance paid for employees. Read Notice 2010-44 for guidance and rules.
11, FUTURE TIME BOMBS IN HEALTH CARE ACT: Start thinking about the new surtax on unearned income in 2013 and the presumptive earned income rules for LLC and decide how to optimize and consider whether LLC’s need to be converted to Limited Partnerships.