In addition, many of the tax cuts that we’ve come to expect over the last decade are changing. I love to plan, so here’s what I’m currently working on:
2010 Planning Moves for Expiration of Bush Tax Cuts
- Tax Rates. We’re planning to accelerate some of our income from 2011 to 2010. Instead of maximizing deferrals into our Solo 401k , we’ll take the income this year and plan to defer more next year.
- Capital Gains. I’m selling the last of our individual stocks to take advantage of the lower long term capital gains rate . I also considered selling one of our rentals  that appreciated significantly since we bought it at an auction, but we might hold off on that one right now since it has such a strong cash flow.
- Itemized Deductions. We’re also planning to defer payments on some tax deductible items. Instead of paying our property taxes in December, we’ll plan to hold off on paying them until January. Same with our January mortgage payment, our year end charitable contributions, and any preschool expenses we normally pay at the end of the year. Think of it like normal tax planning in reverse!
- Mortgage Premiums. Since you will no longer be able to deduct mortgage insurance premiums after December 31, 2010, you should call your lender and ask for the requirements to drop the coverage; most do so if your loan is at 80% or below of the value of your house. Otherwise it might be a good time to refinance , if doing so will bring you under the threshold to pay mortgage insurance.
- Roth Conversions. We’re planning for some 2010 Roth conversions, but we’ll follow the Bush tax cuts closely before deciding when to pay taxes on the 2010 Roth conversions . You can wait until the tax deadline  next year to make your decision; that’s what I’ll be doing.
- Business Purchases. It’s time to make those large business purchases you were putting off. In 2010 you can deduct $250,000 in the year of the purchases. After the Bush tax cuts expire at the end of the year, the Section 179 expense deduction reverts back to $25,000 for 2011.
- Estate Taxes. The estate tax exemption will go back to a $1 million next year. This ought to be a good reminder to update your beneficiaries and wills. I know that mine are out of date again, now that we have three kids.
At this point, I realize that we may get a new set of Obama tax cuts to keep our taxes down. However, I want to make sure that we’re in the drivers seat, no matter what Congress does.