Hire an estate tax attorney.
The estate tax died as scheduled in 2010, but look for a retroactive resurrection this year. Congress effectively has until September to approve a new law since estate tax returns aren't due until nine months after a taxpayer dies. Most lawmakers agree that a tax should be in place. The question is: How much of an estate's assets should be exempted? The congressional re-examination of the estate tax highlights how estate planning can be complex, confusing and costly. Don't follow Congress' bad example and put off dealing with your estate and potential tax ramifications. See an estate tax professional and get your affairs in order sooner rather than later so that your heirs, not the IRS, are your ultimate beneficiaries.
Remember that RMDs are back.Tax-deferred savings plans such as traditional IRAs or workplace 401(k)s are great ways to build a retirement nest egg. But the IRS won't wait for its cut of the account earnings forever. Once you turn 70½, tax law demands you start taking money out of these accounts via required minimum distributions, or RMDs.
In 2009, retirees didn't have to worry about RMDs thanks to a one-year waiver granted by Congress. In 2010, RMDs are back, so make sure you take out the requisite money or you could pay a stiff penalty.
Cash in on low capital gains rates.The Bush administration tax cuts included reductions in capital gains tax rates based on taxpayer adjusted gross income. Currently, the highest rate is 15 percent for individuals in the 25 percent to 35 percent tax brackets. Taxpayers in the 10 percent and 15 percent tax brackets pay no capital gains.
That's scheduled to change in 2011. The top rate will return to 20 percent; the zero rate will revert to 10 percent. There's always a chance Congress could continue the current lower rates, but with the federal deficit, the top capital gains rate is likely to increase. If you are in a higher income bracket and could eventually face higher capital gains taxes, speak with your tax and investment advisers about whether cashing in now at the lower rates fits your portfolio plans.
Be aware of rising income tax rates.Similarly, several other Bush administration tax cuts are set to expire at the end of 2010. As for income taxes, the top tax rate is scheduled to return to 39.6 percent from the current 35 percent and the 10 percent bracket would be eliminated.
Will this happen? Right now, it looks as if the 10 percent bracket is safe, but higher-income individuals might be facing increased taxes in 2011. If you could be affected, talk with your tax and financial advisers about what steps you can take to soften the tax blow.
There has been some talk that growing deficits could prompt rate hikes ahead of schedule. However, a still-sluggish economy and upcoming 2010 midterm elections make that less likely. So pay attention to Congress and to Bankrate for the latest on where personal income tax rates might go.
Keep an eye on health care.President Barack Obama had hoped that health care reform would be resolved by now. But look for this debate to continue into the early part of 2010. If or when lawmakers reach an agreement, you'll need to pay attention to what modifications might take effect.
Many changes, such as an increase in the amount of medical expenses necessary to deduct them, wouldn't show up for several years. Others, however, are on a fast track. For example, the proposal to limit flexible spending account contributions to $2,500 a year would take effect in 2011. If that change comes to pass, you'll need to account for it in 2010 as you make decisions about your company health care benefits.
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