So you think the world ends in 2012? Dude (or Dudette), from the IRS perspective, it might end in 2010 – Coming Tax Law Changes – An Ongoing Series

• IRON100
• November 13th, 2009

The Mayan calendar supposedly tells us that the world we know may ceremoniously, or not so ceremoniously, end on December 21. 2012. Well, it could happen I guess. Yet, for most Americans, there are lots worse things that will happen way before then as well as some opportunities to take advantage of special changes that could impact their retirement lifestyle. Why? Many changes in the U.S. Federal Tax Code are taking shape. Death is inevitable, and taxes are inevitable AND seemingly eternal. When does all that happen?

Yep, 2010. What happens, one might ask?

Most all of the tax reductions made by Pres. George W. Bush's administration will expire. That has huge implications on many tax liability items:

1) The Death Tax could revert to the pre-2001 levels of 55% and 1 million dollars in 2011, but Congress is STILL debating what to do about it for 2010. It was supposed to move to zero in 2010, while the Republican majority that passed the Bush tax cuts decided to repeal the Federal Estate Tax (or Death Tax) permanently. That, obviously, did not happen. Pres. Obama and the current Congress have other ideas. Your estate planning, however, WILL be affected by this decision.

2) Capital gains and dividend taxes are likely to change (and likely INCREASE) as the Bush tax cuts expire. Congress' ever increasing appetite to spend, particularly in light of the raising of the debt ceiling and stimulus spending, will probably drive those taxes up. That could change the investment applicability of things like TIPs (treasury inflation-protected securities), municipal bond and municipal bond funds, and other tax-deferred investments.

3) There are various tax credits and exclusions (including the recent extension of the home buying tax credit) that could affect the timing of real estate purchases and sales.

4) In 2010, for the first time ever, everyone will have the option of converting part of all of their traditional Individual Retirement Accounts (IRAs) to Roth IRAs. This could have seriously POSITIVE implications to retirement income. Much depends on your tax bracket before and after retirement as well as other asset characteristics of your total portfolio. Hopefully this series will help you to plan more effectively to make the decision to convert or not. A good article on this subject (though not totally comprehensive) can be found in this month's (November 2009) AAII Journal, called "Retirement Plans: Evaluating the New Roth IRA Conversion Opportunity".

I will be doing much of the writing myself, but I am currently looking for and attempting to enlist the help of people in the StockTwits community that want to comment on these tax issues. The tax landscape will be changing regardless of who controls Congress, because our debt will mandate some kind of adjustments to taxes (and likely higher adjustments). We want contributions from all who might have particular expertise in a given area of tax law that could be of special benefit to the StockTwits community.

Taxpayers need to be prepared to deal with these issues and now, not later. I have been working on them since earlier this year for my own little enterprises. The differences, while seeming subtle, can have huge implications a decade or more down the road. This is once again evidence regarding my comments from last week. Ultimately, one must understand the tax code and be able to understand the basics of tax liability oneself. It is the only true way to maneuver the labyrinth of the American tax bureaucracy that likely would make the Founders roll over in their graves.

It depends on how much research I can pull together by next week, but I am likely to handle the IRA conversion issue first. The rest will be developed and written beginning after the Thanksgiving Holiday.

Stay tuned. I think you will learn something that could save you money and grief over time.

Again those who want to participate in this community blog on all things related to personal finance, e-mail me at buffalotrader100@gmail.com. This community is far smarter than I am, and your knowledge is valuable to us all.

Tickers: capital gains, capital gains taxes, dividend taxes, dividends, Federal tax changes, Individual Retirement Accounts, IRAs, real estate, Roth IRAs, taxes

blog comments powered by Disqus