Tax planning with the new administration

A new, I prefer bi-racial, President.  We have a slumping economy.  No new taxes on anyone making less than $250,000.00 per year.  There is the promise of new jobs to rebuild our economy.  Billion dollar bailouts for failed investment companies to free up the credit crises yet golden parachutes remain intact.  Then there is the omnipresent ongoing universal healthcare promise dating back to the early 1990’s and finally for some the highly anticipated end of the “Bush” era.  So how are the tax savvy individuals planning to deal with the expected uncertainty of their tax planning with the incoming administration?  Might I suggest that we deal with the current tax code that we have in place and utilize it to the best of our abilities since the current tax code should remain in place and fairly predictable for the next two years barring any major intervention from our new president elect Barack Obama. 

The campaign talk is still fresh in everyone’s minds and there is a great deal of uncertainty about the taxes that we all will have to pay in the future.  If the new jobs come in as promised then the treasury is going to have a large influx of capital to fund the programs touted throughout the campaign if and when they are approved by the house and senate.  If some of the programs are implemented without the funds to pay for them our deficit is going to grow.  If taxes go up only on the individuals making more than $250,000.00 per year there is going to be additional tax revenues however these individuals are the top one percent of taxpayers and I am of the opinion that the tax revenues gained from the increased rates on the affluent will fall well short of what is needed to fund the additional programs therefore subjecting the larger masses, those making less than $250,000.00 per year, to additional taxes.  

So what is the best strategy for dealing with the new administration and the uncertain taxes?  I propose working with the current tax code and utilize it to the best of our ability.  Take deductions that we can now as opposed to waiting for the future and minimize your annual liability.  I feel the typical deductions, if an individual is able to itemize, will remain relatively untouched so the areas of concern lie more with the capital gains, dividends, alternative minimum tax and other areas of the tax code that are less understood.  Long-term capital gains rates are at the lowest I feel they are going to be, ever!  Rates of zero percent for those in the 10 to 15 percent tax brackets and 15 percent for taxpayers in the 25 percent and higher tax brackets.  Short-term capital gains are still taxed at your incremental rate so no tax savings there just on the long-term investments.  Dividends much like the capital gains are taxed at a lower rate typically if the investment has been held for more than a year ultimately lowering your tax liability.  Alternative minimum taxes scare me since the calculation of the tax is lopsided and lacks the inflation adjustment usually afforded many of the other items reported on our tax returns.  For the current tax year there are some items that have been extended to limit the number of people subjected to the AMT however the extension is due to expire and currently there is no indication of what is on the agenda for the near future. 

Given the uncertainty of the coming multiparty administration and the focus on creating new revenue while limiting the affect on the middle class my opinion is to take the offense and plan using the current tax code because we know what we are able to utilize for deductions and the AMT pitfalls.  Trying to plan tax strategy with rules that are unwritten is much like predicting the gains in the stock market which would be similar to predicting the numbers for the upcoming lottery drawing.  I’ll save the money on the lottery ticket and consider myself that much further ahead.

Timothy J. Sweeney, CPA

Tags: accounting, fargo tax services, tax experts, tax xperts, taxes, taxes in fargo

File under: Taxes And Accounting

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