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Contents
About SC&H Financial Advisors, Inc. Personal Financial Planning is not a one-time event—it is a critical, ongoing process that, if managed well, leads to financial freedom. At SC&H, we develop complete and flexible plans that are designed to meet your ongoing needs. They are complete, because you need a fully integrated and comprehensive financial strategy that incorporates all of the most important wealth care issues. They are flexible, because milestones in your life such as a marriage, a career change, the birth of a child, a divorce, or a death in the family will require adjustments to your overall financial plan. Our financial planning methodology is based on the Method 10™ model, an approach that addresses the ten key areas of wealth management that comprise a comprehensive financial plan. To learn more about these services, visit www.scandh.com/fa.
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Our team wishes you and your family a safe and happy holiday season. As always, please let us know if we can be of assistance.
Regards, Greg Horning
As we near the end of 2008, now is a perfect time to review your personal situation and consider taking some steps to possibly reduce your tax bill. Many of the suggestions that follow will sound familiar to you, but they are still useful strategies and should be considered as you begin your year-end tax planning. In addition, the recent passing of the Emergency Economic Stabilization Act of 2008 introduced some new planning opportunities and extended some provisions that had expired. This article, while not comprehensive, provides some ideas for you to consider. Timing of Income and Deductions If you have control over when you receive income or pay expenses, you have some control over your overall income tax liability. Some strategies you can implement to decrease your liability are: increase your charitable contributions; pay your real estate tax bill or your estimated state income taxes before December 31; and examine your medical expenses to see if you will benefit by bunching them into the current year. If you live in a state with no income tax, or if you pay little or no state income taxes, the Emergency Economic Stabilization Act of 2008 extended the state and local sales tax deduction for 2008 and 2009. Review your receipts and look for any large purchases you made in 2008, or consider accelerating large purchases into the current year to maximize this deduction. New for 2008, if you don’t itemize, the Act allows non-itemizing taxpayers to claim an additional standard deduction for state and local real property taxes paid. On the income side, it is difficult to control when you receive income, unless you have a cash-basis business and you can control your billing cycle. However, even if you only receive a W-2, you can still reduce your income by maximizing your 2008 retirement plan contributions. Depending on the type of retirement plan you are using, the contribution may need to be made by December 31. For the past two years, individuals age 70 ½ and older have been able to transfer up to $100,000 from their IRAs to a charitable organization without recognizing income or taking a charitable deduction. The distribution is included as part of the taxpayer’s required minimum distribution for the year. The Act extended this provision through 2009, allowing well-meaning individuals to exclude this distribution from income and benefit the charity or charities of their choice. The Act also extended the deduction for qualified tuition and related expenses and the $250 deduction for certain expenses of school teachers. Both deductions have been extended through the 2009 tax year. Investment Planning As we near the end of an extremely volatile year in the stock market, it’s important to evaluate your portfolio and consider tax loss harvesting. We can sell securities at a loss to offset capital gains and up to an additional $3,000 of ordinary income. Unused capital losses can be carried forward to future years. Perhaps you have a loss in a stock or mutual fund that you still feel good about and are comfortable holding. This is a common situation for most of us this year, as even the best investments have taken a beating. As long as you don’t violate the wash-sale rules, which disallow losses on the sale of a security if a substantially similar position is repurchased within 31 days, you can sell the position now and buy it back after the 31 day window has closed. If you are in a high tax bracket and expect you will have significant taxable interest income, you might consider investing in municipal bonds. Municipal bond interest is exempt from federal income tax as well as state income tax of the issuing state. The coupon payments can provide you with a relatively secure and stable source of income. Another option to consider if you are looking for investment income but want to reduce your overall tax burden is a real estate limited partnership. These partnerships can provide real estate diversification and generate passive income which can help offset other passive losses in your portfolio. The cash distributions from these partnerships are generally not taxed, due to depreciation deductions available to the partnership. However, they are long-term illiquid investments and may not be suitable for many taxpayers. Estate Planning While you won’t see an immediate tax benefit from gifting to family members, the power of maximizing your annual gift tax exclusion should not be overlooked. You can give up to $12,000 per person per year and pay no gift tax on the amount transferred. If you are married, the amount you can give per person doubles to $24,000. The gift can be cash or property, such as an investment that you expect to appreciate in value. Annual gifting over the years can have a dramatic impact on your estate tax bill down the road. Alternative Minimum Tax Planning The alternative minimum tax (AMT) affects more taxpayers each year. Although the Act increased the AMT exemption (to $69,950 for married individuals filing jointly and surviving spouses, $46,200 for single taxpayers, and $34,975 for married individuals filing separate returns), the fact remains that the exemption is still subject to a phase-out threshold and many taxpayers will find themselves in the unfortunate position of paying more tax. Your year-end projection should include an analysis of potential AMT liability. For example, state and local income taxes are not deductible in calculating your alternative minimum taxable income. If you think you will be subject to AMT, don’t make that fourth quarter state tax payment until January of 2009. On the plus side, the use of nonrefundable personal tax credits against an individual’s regular tax and alternative minimum tax liability is extended under the Act to tax years beginning in 2008. For this purpose, the regular tax liability is first reduced by the amount of any applicable foreign tax credit. Without this extension, the amount of most nonrefundable personal credits that could have been claimed by an individual would have been limited to the excess of the taxpayer’s regular tax liability over tentative minimum tax liability. This provision will benefit those taxpayers who are entitled to claim such credits as the Dependent Care Credit and the HOPE Scholarship and Lifetime Learning credits. The professionals of SC&H Financial Advisors are available to meet with you to evaluate your own tax outlook and help you determine if you can benefit from any of the ideas presented in this article, or from additional planning opportunities that may help minimize your tax bill in April. Key Rates and Figures for 2008
Securities offered through 1st Global Capital Corp. Member FINRA, SIPC. Investment Advisory Services offered through SC&H Financial Advisors, Inc. Insurance offered through 1st Global Insurance Services. SC&H Financial Advisors, Inc. and 1st Global Capital Corp. are unaffiliated entities. |
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