Unless Congress Acts long term capital gains rates will go up 5% next year. Not huge, but not great either. If you can take gains in 2010, you’re better off than taking them in 2011. You can always rebuy the stock in 30 days. Additionally, this might lock in any gains which might be reduced after the beginning of the year due to the market adjusting for the tax. Short term rates remain unchanged. The other problem if Congress doesn’t act is the alternative minimum tax. If you recognize large capital gains, you might incur AMT in 2010, but clearly could trigger it in 2011 due to lower thresholds in 2011. So, if you’re thinking of selling things off in 2010, have your tax advisor run the AMT numbers for you.
Update on the Small Business Loan Bill
The House passed the Senate version, its on the President’s desk to sign.
We Interrupt this Planning discussion
The Senate version of Small Business Bill is apparently going to be voted upon by the House of Representatives this afternoon or evening. President Obama will get to sign the bill either tomorrow or next week.
Planning for the End of the Year
As we move forward this year, it appears that there are three issues that will need our focus. (1) Planning for Capital Gains and Losses and Dividends. (2) Estate Planning, and (3) Alternative Minimum Tax Planning. Today, I’m going to focus on dividends. Unless Congress acts, the dividend rates will go up from 15% Federal tax to your marginal tax bracket (as high as 40%). This means that if Congress fails to act, that stocks which are income sensitive, like utilities for example will go down in value as we approach the end of the year because the tax hit on their dividends will be higher. Thus, it might make sense to consider getting away from taxable dividend paying stocks and mutual funds as we get closer to the end of the year. This also applies to “blue chip” industrial stocks to some degree as well. High dividend stocks may very well be less favorable after the first of the year. Tomorrow we’ll talk about planning capital gains and losses.
Small Business Tax Bill
The 1099 requirement on Landlords is going to have an impact even on the guy renting out one house. Assume that he has one plumber who he paid $600 to install a new dishwasher. First, he has to go to the IRS and get a form 1099MISC (or to an office supply store). He now has to fill out a 1099MISC for the plumber, get his social security (or EIN number), fill out a 1096 to forward the 1099 to the IRS (which probably was not part of the package he originally got), and then put a stamp on it to mail it to the IRS. That will take him 2 hours of time plus the gas to go to the IRS to get the forms, plus postage stamp. All told compliance will cost him $300. Tax generated to IRS by the 1099 = $250. Or he’ll choose not to deduct the $600 on his taxes and avoid the hassle. Aside from the fact, he just broke the law, his tax savings cost would only be $170. In other words, he saves $130 in taxes. If Congress had thought of making the reporting level $5000 (as recommended by Senator Nelson), it would have been reasonable. This is going to fuel the fire for independents who don’t mind paying their taxes, but hate the paperwork, if passed by the House and signed by the President.