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Financial Planning Newsletter• December 17, 2010 

Thinking Retirement?

Financial Planning Newsletter
December 2010

Important Tax News!

Congress just passed the 2 year tax extension so we will recap what this means along with looking at some year end tips:

2 Year Extension of the 01/03 tax cuts:

Just a couple of months ago we discussed that the income tax rates were scheduled to rise in 2011 but with the 2 year extension income tax rates, capital gain rates and dividend rates will hold through 2012:

Tax Bracket Dividend Tax LT Cap Gain Tax
10% 0% 0%
15% 0% 0%
25% 15% 15%
28% 15% 15%
33% 15% 15%
35% 15% 15%

This is good news as it means there won't be a rush to sell dividend producing investments.

Other items:

  • in 2011 SS payroll taxes (employee portion) drops from 6.2% to 4.2%. That means 2% more in your paycheck!
  • AMT patch for 2010 / 2011 is put in place.

Estate Tax is Reinstated:

We all knew that the Government would not allow Estate Taxes to be permanently repealed. For the next two years Estate Taxes are back but at a $5 Million exemption and 35% tax on everything over that. This is much better than the $1 Million exemption and 55% tax rate that was set to appear in 2011!

I was reading in an Accounting Journal that there was talk of also increasing the personal lifetime gift exemption from $1 Million to $5 Million per person. This has yet to be confirmed as I cannot find mention of it so far in the bills highlights.

You can still gift $13,000 per person / $26,000 per couple as your annual exemption each an every year to as many people as you like.

Roth Conversion extended:

It appears that you have an additional 2 years to do a Roth Conversion as well. The benefit of doing it prior to 12/31 of this year is that you can spread the tax payment over 2 years, doesn't appear this is an option for 2011 and 2012 conversions. Big NOTE: If you are doing a conversion pay special attention to AMT preference items like State Taxes. A large Roth Conversion in which you pay all of your State Taxes may put you into AMT territory. Talk with your CPA!

Last Minute Year End Tips:

Looking to so some last minute housekeeping items to save you a few bucks on your taxes? Here are a few ideas:

  • Charitable Contributions
  • Selling any losses in taxable investment accounts: $3000 limit on losses but you may be able to offset dollar for dollar any capital gains you have
  • Don't forget to use up Flex Spending Account Money. Most of these are use it or lose it programs.
  • Prepay January mortgage or property taxes that are due in early part of year.
  • Some states offer state tax deductions for 529 college savings contributions.

SSA-521 Voluntary Withdrawal of Benefits:

All good things must come to an end! We wrote about this program where you could file for Social Security benefits early, bank all the money and then pay back the SSA all of the benefits, keep the interest and get a higher monthly benefit check. Sadly this program got to well publicized as an interest free loan from the Gov and as of Dec 8th they dramatically changed the program. Now you can only do this within 12 months of receiving your first benefit check.


Have a Great Holiday! See you in the New Year.

James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

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