Tax Planning

Just about everyone knows that there are only two absolute certainties in life, death and taxes. Uncle Sam, each state, and local municipality want to separate you from your income and capital in just about every transaction that you make during life, and even in death. Whether you work for a living, own a business, purchase any product, make an investment, get married, and raise children, you are immersed into a sea of daunting tax laws and implications. Tax planning never stops and should be regarded as an ongoing process. Remember the old adage that is so true today; “It’s not how much you make, it is how much you keep”.

To start tax planning, you need to take inventory of what you have: home, job, business, retirement plan, investments, health, education funds, insurance, real estate, rental property, etc. Next, review your prior year tax return for income sources, credits, deductions, passive losses, capital losses, business losses carry-forward. Most often, these sources and deductions do not change. Always ask what is new or what has changed.

Develop a long term financial and integrated tax strategy. Make short term tactical moves to fit that strategy. But most important, “Don’t let the tax tail wag the dog”. One clear signal that we have is that the current income tax rates are the lowest you will see for the rest of your lifetime. Current tax rates from the Bush tax cuts in both the income and estate tax bills are due to expire in 2010. The current Administration is determined to raise both the income and estate tax rates to pay for all of the entitlement programs they have passed. The following different types of taxes and planning ideas can be implemented both for the current year and long term horizon: