Post Tax-Season and Mid-Year Planning

Article excerpt

We can now breathe a sigh of relief because your 1999 return has been signed, sealed, and delivered to the IRS. At this time of the year it is easy for both of us to sit back and relax and perhaps wait until the end of the year to look at our tax picture again. However, in order for us to take maximum advantage of the planning opportunities available in the tax laws and regulations, it is important for us to take this opportunity--particularly while the issues that arose with respect to your 1999 return are fresh in our minds--to strategize how best to plan your tax picture for this year.

Although Congress did not pass "big" tax legislation last year (in comparison to legislation passed in the last three years), the legislation that did pass has had an impact on a large number of people. In addition, some of the provisions from the tax legislation passed in 1997 and 1998 were not effective until this year. There are also legislative proposals on the table that may change your tax picture before the end of the year.

This letter discusses some tax planning strategies that you should be thinking about and should provide a basis for implementing a tax planning strategy for this year. This list is by no means exhaustive, and it is not meant to preclude the use of certain tried-and-true strategies that may still work for you.

Alternative minimum tax:

An increasing number of what are considered "middle income" taxpayers are being caught in the web of alternative minimum tax liability. However, the Ticket to Work and Work Incentives Act of 1999 provided some relief to these taxpayers for tax years beginning in 2000 and 2001 by permitting the personal nonrefundable credits to offset both the regular tax and the minimum tax. This is done by limiting the amount of nonrefundable credits by the sum of (1) the taxpayer's regular tax liability less any allowable foreign tax credit, plus (2) the amount of alternative minimum tax liability.

Estimated taxes:

With the increased income that many of you may be experiencing due to IPOs and other stock market bonanzas, along with the boom in the real estate market, it is imperative to review whether you are paying enough estimated tax to avoid penalties for failure to pay sufficient estimated tax. When evaluating the amount of estimated tax, it is important to consider that last year Congress increased the estimated tax prior-year safe harbor percentages for prior tax years that begin in 1999 and 2000. Taxpayers with prior year's AGI above $150,000 must pay 108.6% of their prior year's tax for a prior tax year beginning in 1999, and 110% for a prior year tax beginning in 2000, to qualify for the prior-year safe harbor.

Investment planning:

So far it has been a year of extremely active trading on the stock market--many taxpayers have bought and sold aggressively. Most taxpayers who are actively involved with the market are bound to have both gains and losses this year. Given the inclination toward day trading (or, at least, buying and selling without holding on to stock for too long), many taxpayers may have short-term gains and losses. …