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Year-End Tax Planning in 2010

The Wall Street Journal has a good summary of some year-end tax planning issues and strategies given the uncertainties about federal tax liabilities in 2011. Two of the points are of particular interest: capital gains/losses and 401(k) conversions.

Regarding capital gains and losses, The Journal points out the following:

If Congress extends the Bush 2001-03 tax rates for couples earning more than $250,000 ($200,000 for singles), then the top rate on long-term capital gains (those held longer than a year) will remain 15% for a year or two. If lawmakers don't extend the current law, then on Jan. 1 the top rate on gains will rise to 20%.

The Journal continues in regard to 401(k) conversions:

This is a big year for Roth conversions, and anyone can do it this year (the restrictive income limits that frustrated high-earning taxpayers has been lifted). There are considerable advantages to doing this – your assets grow tax-free, you don’t have to pay taxes when you withdraw this money, and there’s no minimum distribution requirements once you turn 70 1/2. Now, you will have to pay taxes on the conversion, but you can spread these payments out over the 2011 and 2012 tax years.

This brief overview of some important considerations associated with the year-end tax planning in 2010 is by no means comprehensive. Always seek the advice of a competent professional when making important legal decisions.

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