Going Green Pays
Because of some tax credits that are available to taxpayers in 2008, when considering your year-end tax planning you may also want to think about whether now may be a good time to make certain big ticket purchase before the year is over.
For instance, if you were thinking about purchasing a car in the near future, you may want to make it before year's end—that is as long as it's a hybrid.
"To get the full credit, would want to drive off the lot this year to get 2008 credit," Hukki said.
According to the IRS, the credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
For 2009 models, the Ford Escape and the Mercury Mariner Hybrid 2-wheel drive models, will yield a credit of $3,000, while the 4-wheel drive versions of each model will offer a credit of $1,950, according to the IRS.
There is also a credit for qualifying first-time home buyers that was included in the Housing and Economic Recovery Act of 2008. The credit, according to the IRS, applies to homes bought after April 8, 2008, and before July 1, 2009. The credit can cut your tax bill or increases your refund, dollar for dollar. The credit basically acts as an interest-free loan that must be repaid over a 15-year period, beginning in 2010, and can provide up to $7,500 in immediate tax relief.
So, if you close on a house in 2008 or into 2009, you immediately get that refund or you lower the taxes you would have owed by $7,500.
There is also a tax benefit, also under the Housing and Economic Recovery Act of 2008, which is geared to homeowners who don't itemize but instead take the standard deduction, likely because they have already paid off their mortgage. This provision lets these people add on the property taxes paid on their house to the standard deduction and "is particularly important for baby boomers that are retired now," he said.
Predictions '09: Real Estate
Another tax factor to be aware of is the estate tax, which is the tax posed on assets that are transferred after death. The future status of the estate tax remains uncertain. As per the IRS, for decedents dying in 2008, an estate tax filing is required for gross assets and prior taxable gifts exceeding $2 million. In 2009 this increases to $3.5 million. However, in 2010 things get tricky as the tax is repealed just to be reinstated the following year for assets exceeding $1 million. The catch here, though is that this can change as many expect President-elect Barack Obama will seek to have the tax set at the 2009 level of $3.5 million.
While any tax changes that are made during the Obama administration in
2009 are highly unlikely to be retroactive to 2008, there are some other proposals as well that experts say you should be aware of and discuss with your CPA as they may, if implemented, impact some elements of your 2008 planning. (See related story)
One is an increase in the preferred rate on qualified dividends and capital gains from 15 percent to 20 percent, or even 25 percent for high-income earners. If you have a lot of unrealized gains in your portfolio you may want to consider taking some of them now in case the tax rate increases later.
Obama's tax proposals also include imposing higher taxes on couples earning more than $250,000 a year ($200,000 for individuals).
Again, while any changes made during the Obama administration are unlikely to have an impact on the 2008 tax year, it is worth discussing these possibilities, as well as other tax-planning issues before the year is up to ensure you are taking advantage of as many breaks as possible.