Tax Planning tips for 2009 Year End

by Tom Tousignant

in Blog, Financial Safety, Wealth Building

I asked two local CPA firms, Toler, Bly & Associates, CPA, PLLC in Matthews, NC and James L Gibson, CPA, PC in Charlotte, NC to share with me some end of year tax planning tips.  I hope you can find some money saving ideas here:

Once December 31st has come and gone, your tax liability for the 2009 tax year will be set in stone. Until then, and especially now that your final tax picture for 2009 is becoming more clear, year-end tax planning presents a unique last chance to lower your tax bill. It is an investment in time well worth considering. By taking certain steps now, before 2009 draws to a close, you can reduce the size of your tax bill otherwise due when you file your return next year. Especially this year, when Congress has inserted a handful of powerful but temporary tax breaks to get the economy moving again, you do not want to overlook any deduction or credit that you can take in 2009.  Managing what income you recognize or defer also can pay dividends as you focus on balancing your tax rates between 2009 and 2010, and beyond, with tax reform on the horizon.

Year-end tax planning is made more urgent in 2009 because of some significant tax law changes, both those that have taken place to stimulate the economy and those now on the horizon to pay for the recovery.  Many of the tax breaks in recent stimulus tax bills will expire at the end of this year. At this point, Congress cannot be counted on to extend any of them for 2010:

  • For individuals, these expiring provisions include the itemized state and local sales tax deduction; the $4,000 higher education tuition deduction; the additional standard deduction for real property taxes; and the above-the-line $250 teachers’ classroom expense deduction.
  • For businesses, bonus depreciation and enhanced “section 179 expensing,” both designed to temporarily encourage business to make capital investments, likely will be headed for extinction at the end of 2009.

What’s on the horizon, for 2010 and beyond, is also crucial to effective year-end tax planning this year:

  • In 2010, the opportunity to convert any IRA into a Roth IRA without the long-time $100,000 income restriction has many individuals already setting aside funds. Some individuals, however, may do better to convert to a Roth IRA before the end of 2009, when the value of their accounts, and the consequential income that must be recognized on conversion, are at historic lows.
  • Effective for 2011, the Obama administration has proposed to increase the income and capital gains tax rates on single individuals with incomes of more than $200,000 and married couples with incomes exceeding $250,000. For taxpayers in those groups, including unincorporated small businesses from which their owners recognize income on their individual returns, following the traditional year-end planning maxim of deferring income into next year may not work well this year. Deferring too much income into 2010 could result in overloading income next year if you are looking to accelerate income into 2010 to escape the expected higher rates in 2011.

Planning for deductions and credits at year-end can also get complex but can be equally as rewarding. Timing and qualification rules create traps and opportunities:

  • Pre-paying certain expenses, such as real estate taxes or mortgage interest, do not necessarily translate into a larger deduction this year.
  • Paying a spring college tuition bill in late December instead of early January, however, can impact whether you maximize the benefit of the new American Opportunity Tax Credit for both 2009 and 2010.
  • Year-end charitable giving generally has always been a smart way to reduce current year taxes but strict timing rules and revised substantiation requirements for property donations cannot be overlooked.
  • Homeowners should also not ignore taking advantage of the new residential energy property credit, which has a unique set of rules on qualifying expenses and deadlines for installations.

Some things that you should be thinking about and some new laws that have been passed this year:

Making Work Pay credit.  Many wage earners are seeing an increase in their tax-home pay because of the Making Work Pay credit. Employers started using new withholding tables reflecting the credit in April. However, individuals with multiple jobs and some pension recipients may discover they had too little tax withheld when they file their 2009 returns in 2010. In May, the IRS issued a withholding option for pension plans to offset the Making Work Pay credit. The IRS also reminded individuals with more than one job to adjust their withholding. 

First-time homebuyer credit.  The first-time homebuyer credit reaches $8,000 for purchases between January 1, 2009 and June 30, 2010. (Home must be under contract by April 30, 2010) Taxpayers must be qualified buyers and satisfy income requirements, and the credit can be up to 10% of the purchase price of the house, with an $8,000 limit.

Energy Credit.  A new law provides benefits to homeowners like you by reinstating the Credit for Nonbusiness Energy Property (CNEP) for 2009 and 2010. As you may know, the CNEP can be taken when qualified energy efficient improvements or expenditures are made for your principal residence, including new insulation; replacement windows, skylights and doors; central air conditioners; certain water heaters, furnaces or boilers; and a new metal or asphalt roof specifically treated to reduce heat loss. It increases the credit from 10 percent to 30 percent of qualified expenses and a maximum of $1,500.

Motor vehicle sales tax deduction.  The motor vehicle sales tax deduction is a temporary incentive created by the 2009 Recovery Act. The amount of the deduction is limited to the portion of the state sales or excise tax imposed on the first $49,500 of the purchase price of the vehicle.

COBRA premium assistance.  Individuals involuntarily terminated from employment between September 1, 2008, and December 31, 2009 may qualify for nine months of COBRA premium assistance under the 2009 Recovery Act. Some family members who are qualified beneficiaries may also be eligible for the subsidy. Individuals pay 35 percent of the COBRA premium and employers must treat that as full payment. Employers claim a credit for the other 65 percent of the premium on their payroll tax returns.

Roth IRAs.  Effective for 2010, individuals will be able to roll over funds to a Roth IRA regardless of current income. This could be a good way to get some pre-tax money deferred into post-tax accounts, especially with investment values as lower values than a couple years ago.

Unemployment benefits.  Individuals receiving unemployment benefits in 2009 can exclude the first $2,400 from their incomes. Individuals who are receiving unemployment compensation can elect to have income tax withheld on benefits. 


If you need a CPA to assist you with your taxes and tax planning, learn more about Toler, Bly & Associates at or Jim Gibson’s services at Please let them know you learned about them here if you use their services.

Think you will get a big refund?  Create a plan now for the best use for that money. Build that emergency fund, pay off debt, or fund an IRA or college savings.

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