Year-end Tax Tips in an Uncertain Economy

The decline in economic activity has many of our clients seeking advice on how to recover from their investment losses. There are some strategies that may help to reduce your tax liability and give you peace of mind.

Unemployment:
If you are unemployed, here are some suggestions to generate more cash: you can try liquidating some assets; borrow from a life insurance policy or retirement plan; and discontinue automatic contributions to retirement and college savings accounts.

Stock losses:
You can sell those stocks or mutual funds that have declined or become worthless or you can fulfill the IRS 30-day rule by purchasing additional shares of the security, especially in anticipation that the stock price may raise during the next 30-day period. Subsequent to holding the newly acquired stock for 30 days, you can sell the original shares at a loss. In either situation, your loss qualifies for capital loss treatment and offset any excess up to $3,000 of ordinary income.

Retirement:
Due to the recent decline in the financial market, some retirees are withdrawing assets that are currently undervalued. If Congress temporarily suspends, before the end of 2008, the required minimum distribution (RMD) rules for IRAs and qualified retirement plans, it would help some retirees generate more cash. Congress may also allow individuals to take early distributions free of penalties, but still subject to income tax.

Mortgage Forgiveness Act:
The Mortgage Forgiveness Debt Relief Act of 2007 excludes from taxation discharges of up to $2 million of indebtedness secured by a principal residence. The new law also offers a tax relief to the homeowner if a lender offers a mortgage workout resulting in a lower monthly payment.

Income shifting:
Individuals and businesses can benefit from the shifting of taxable income, accelerating deductible expenses in 2008 and deferring income in 2009.

Businesses:
Tax deductions and credits that should be considered include deductions for leasehold improvements, credits for efficient energy use, deductions for giving used computer equipment and other assets to charity. Businesses that purchase equipment can utilize depreciation, bonus-depreciation, and expensing techniques.

Pursuant to U.S. Treasury Department Regulations, the above information is not intended to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the Federal government.

This article was produced by Mark Singh MBA of the Accounting firm Mark Singh, P.A. ( Accountants & Tax Professionals ) servicing small businesses and individuals.