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While it seems much too early to be talking about taxes, we are approaching year end, and with that comes the deadline for many tax planning considerations. Also, by 2009 we will have a new president and changes in congress. With this comes speculation of tax rates and laws changing. Even if no legislative changes are made, unless congress extends "JGTRRA" legislation of 2003, current capital gains tax rates of 15% will revert back to their previous 20% rates. Beyond this, speculation of income tax rate increases is again on the rise.

So what's a person to do? Well, the first step is to assess your situation. Here's six things to consider:

  1. Income: how does this year compare to last year, and what does 2009 look like for you?
    • Is 2008 income looking substantially different from last year or next year? Will you likely be in a different tax bracket (rate)?
    • Can you defer income (e.g. year-end bonus) or accelerate pre-tax contributions to 401k or other retirement plan to bring down your taxable income?
    • Conversely can you accelerate income if 2009 is likely to be a higher income year?
    • Other income - did you collect unemployment; receive any pension or Social Security income(s)?
  2. Do you have any assets with capital gains that you have previously considered selling?
    • Do you have carry-forward losses that are going un-utilized, or maybe better save them for future?
    • Did you sell or purchase your home that may or may not have significant tax consequences.
  3. Filing Status: have you had a change in your filing status: this could be either a new child, or marriage, divorce or death in family.
  4. Are your deductions significantly greater than previous year? While this may seem like a good thing for taxes, it may trigger Alternative Minimum Tax (AMT)?
  5. Are you eligible to contribute to a ROTH IRA or convert an IRA to a ROTH IRA? While contributions can occur up through April 15 (tax filing deadline), conversions must occur within the calendar year (by December 31 st ).
  6. Are you (or loved one) retiring soon? Planning to collect Social Security or pension plan? Are you close to or turning 70 years old - you may need to withdraw retirement assets.

This is by no means intended to be a comprehensive or complete list. Rather, just some things to get you thinking about your situation and to encourage proactively addressing (the next step) rather than simply sitting back and waiting for your tax bill to arrive in April. Even if you traditionally get a refund, this does not exclude you from the opportunity to lower your tax bill (get an even bigger refund). But like all things, it takes a bit of work. I would encourage you to seek out professional tax advice to determine if your situation can benefit by some year-end planning.


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