The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) initiated a series of tax cuts, including reductions in the income and estate tax rates.  However, the act included a ‘sunset provision,’ which takes effect December 31, 2010.  This means that as of that date, various tax laws revert to pre-2001 status, as if EGTRRA had never happened—unless additional legislation has been passed between 2001 and today. We are midway through 2010 and many clients want to know which provisions are expiring and which are here to stay.  A few major EGTRRA provisions of importance to many of our clients are summarized here.

Income Tax Rates

The EGTRRA income tax rate reductions are among those set to expire at year-end.  The lowest income tax bracket will increase to 15 percent (from 10 percent), while the highest bracket reverts to 39.6 percent (from 35 percent).

Long Term Capital ...

It always seems to be here before we’re ready: summer is coming to an end and soon the leaves will be begin to fall. Old Man Winter will be pulling out his coat, and we will be planning Thanksgiving dinner and holiday festivities. But before we get immersed in planning our celebrations, it’s time to think about year-end tax planning and opportunities.  In addition to your normal year-end tax planning, here are some other considerations you may want to discuss with your tax preparer and Family CFO prior to December 31.

·        If you are 70½ or older, be aware that you are not required to take a required minimum distribution from your IRA in 2009. This may result in a significant tax savings.   If you do not have other significant income—such as a pension, deferred compensation or other—you may consider the merits of taking a partial distribution from ...

It is difficult to see, or even catch a glimpse, of a silver lining during these turbulent times. But many investors, including Warren Buffet, are looking at today’s market as a saving/buying opportunity of a lifetime.  The good news is that tax sheltered savings is more favorable in 2009 than in previous years.  This is of particular importance considering President Elect Obama’s proposed changes to federal tax policy. 

So what definitive changes are in store for 2009? 

While contribution limits to Traditional and Roth IRAs remain unchanged in 2009, the Modified Adjusted Gross Income limits have increased.  Other retirement vehicles including Simple IRAs, 401(k)s, 403(b)s will see contribution limits increase in 2009, and the compensation limit has also been lifted for SEP IRAs and Defined Contribution Plans.  

Traditional IRA Contribution Limits for 2009:

Unchanged from 2008:

Remember when 2010 seemed so far away?  We are almost five months into 2009, and before it seems possible, we will again be ringing in a New Year—and preparing for a new tax season.   

With several tax provisions and revisions in question, a lot of uncertainty exists within the tax realm for the near future. However, one thing that is certain is the ability to convert a Traditional IRA to a Roth IRA in 2010 without any income limitation.

A Roth IRA conversion is off the table for higher wage earners, as the current eligibility requirement is that one’s adjusted gross income must be less than $176,000 if married filing jointly.  But all that changes in 2010 as current tax laws provide for the removal of the income restriction. 

The following are things to consider when contemplating a conversion:

·        You have to pay income tax upon ...

As we are following some of the tax policies being released by the Obama team, we want to update you on several of Obama's proposed tax policies.  While we do not know what the final policies may look like, here is a brief summary of the latest proposals:

• Democrats hope to have an economic stimulus package ready for the president's signature on January 20th.  Although details are not clear there has been talk of some sort of payroll tax credit or temporary employment tax holiday early in 2009 aimed at helping lower and middle income wage earners and self-employed individuals.  Higher-income earners could find themselves paying more in employment taxes in 2009, with a "payroll surtax" possibly as high as four percent on compensation above $250,000.
• For individuals, Obama will most likely renew the 10, 15, 25, and 28 percent tax brackets that are set to sunset after 2010.   However, the ...

With so many items included in the various bail out and stimulus packages, it can be difficult to determine what really applies to you.  Last fall we posted a blog on the potential repeal of Required Minimum Distributions (RMDs) from IRAs and retirement plans.  Those over age 70 ½ should note that while RMDs were not suspended for 2008, the requirement has been lifted for 2009.  This one-time option to suspend is intended to give retirees a chance for investments to recover following last year’s market sell off.

The RMD suspension applies to IRAs, 401(k)s, 403(b)s, and other defined contribution plans.  The suspension also applies to those under age 70 ½ taking distributions from inherited IRAs.  In addition to allowing IRA investments to recover, this may also provide a unique tax planning opportunity, since IRA and retirement plan withdrawals are generally subject to ordinary income tax.

If ...

Oh, to be a first-time home buyer again! The emotional ups and downs of searching for that perfect house…the excitement of receiving the keys to your new pad at the closing…knowing you’ll receive an $8,000 tax credit on your income tax return the following April...

Okay, maybe you remember the first two thrills, but the third didn’t exist until the American Recovery and Reinvestment Act of 2009 came to pass.  Most clients of Moneta Group are unlikely to be first-time home buyers (nor qualify for the credit based on the income limitations), but this scenario may apply to your children who are perhaps graduating from college, landing that first “real” job and settling in on their own.

While this posting is by no means a recommendation to purchase real estate as an investment (or rush into a purchase just to receive a tax credit), it certainly seems like ...

Did you know that as of January 1, 2010, the estate tax has been repealed? 

Bill Gates, the founder of Microsoft, is worth an estimated $7 billion.  Now, we do not wish any ill will on Mr. Gates, but under current law, if he were to die, theoretically his heirs would owe $0 in estate tax. 

So how did we get into this mess?  This scenario results from a law enacted in 2001 under President George W. Bush which gradually increased the estate tax exemption from $675,000 in 2001 to $3,500,000 in 2009, eliminating the tax in its entirety in 2010.  At the time the law was passed a majority of lawmakers, estate planning attorneys and accountants figured Congress would pass a bill closing the 2010 loophole, but to everyone’s surprise, the clock struck midnight on December 31^st and just like that, the estate tax disappeared. 

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