2009 Year End Tax Planning

• December 15, 2009
• Paul Neiffer

With the end of 2009 less than three weeks away (where does the time fly), I thought I would post a year-end tax planning update for farmers.  Most of this information applies to non-farmers also, but wanted to give you something to plan for.  Again, make sure to review this with your tax advisor before implementing any of these recommendations.

 

• Required minimum distributions from individual retirement accounts were waived for 2009.  Also, if you are turning 70 1/2 this year, remember that you must take out your first distribution by April 30, 2010, however, if you wait till 2010, you will be required to take two distributions, one for 2009 and one 2010.  This may put in into a larger tax bracket.  Check this out before deciding to take next year.
• Review the expected tax rates for 2010 and 2011 to determine how much income or expense to record in 2009.
• Vehicle sales tax are deductible for those who do not itemize.  Limit is based upon a purchase of up to $49,500.
• If you are planning on larger charitable contributions, you may want to consider a direct transfer from your IRA.  This can save taxes on your social security income, if applicable.  This applies to people 70 1/2 and older.
• If you are selling land on an installment contract, you may want to consider electing out of the installment method.  Capital gains rates are probably as low as they will be for the next several years.  It may make sense to pay taxes now (CPA do not say that too often).
• There is a $8,000/$6,500 homeowner’s tax credit for home purchases through April 30, 2010.  You can claim the credit in 2009 even if the house is purchased in 2010 by that date.
• College education credits are enhanced.  It now has a larger credit, higher income limits and 40% of the credit is refundable even if you owe no tax.
• Review your Roth IRA conversion opportunities for 2010.  In 2010, you can convert any amount with-out worrying about any income limitation and the amount converted is reported as income 1/2 in 2011 and 2012.
• You can give $13,000 to any individual without filing a gift tax return.  This is also true for the spouse.
• Remember that 50% of new equipment purchases can be deducted immediately.
• Remember that Section 179 expense for 2009 is $250,000.
• Most farming equipment is now deprecated over five years instead of the old seven year life.

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