Three Ways to Tackle Taxpayer Remorse

Tuesday, May 11th, 2010

Were you shocked by how much you owed in taxes this year; and by how little of it you got back as a refund? You’re not alone. Here are three tips—from the book Cut Your Tax in 2010 (And Preserve Your Legacy) by Chicago-area tax and estate planning attorneys Dean R. Hedeker and Anthony R. Perrelli—that can help you overhaul your financial strategy and make future tax seasons more digestible.

Tip 1: Take Strategic Tax Hits in 2010

It may be best (in the long run) to pay certain taxes this year, instead of avoiding them. The upfront tax hit on rolling your retirement savings into a Roth IRA fits this category perfectly. This is the first year that anyone can get a Roth IRA, regardless of income. Here are the benefits that make a Roth IRA rollover worthwhile this year:

• Future growth on the investment is tax free.
• Only in 2010 can you spread your tax responsibility over a two-year period.
• You can actually undo the conversion if you change your mind. (How great is that?)

It may also be a great year to sell real estate and face possible capital gains taxes. That’s because capital gains taxes will certainly increase in the years to come. What’s more, if you are still suffering from capital losses due to the recovering economy, the dip could potentially offset any capital gains you would face when selling property.

Tip 2: Divide and Conquer Your Assets in 2010

Revocable Living Trusts are not just for the elite. With the federal estate tax revoked, trusts are more essential than ever to protect your family from huge capital gains taxes on hard-earned assets by providing legal “tax shelters” for your benefactors. If you already have a trust, re-evaluate its effectiveness against the current tax laws, which have changed dramatically over the past couple years.

And if you plan on giving a certain amount of your savings to family and charitable organizations eventually, why not starting now? There’s a tax-free allotment every year.

Tip 3: Don’t discredit business deductions and other tax credits.

Business deductions are tricky business. Most self-employed individuals and small business owners could save an alarming amount on taxes by better accounting for their out-of-pocket business expenses like dry cleaning and cell phone charges. Just be honest in not over-estimating some of the more popular deductions, like the size and use of your home office (one of the top reasons business owners are audited). Another big mistake that contractors and freelancers often make is in not subtracting reimbursable expenses from the taxable income they report.

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Why Get a Will?

Tuesday, March 23rd, 2010

We recently had the opportunity to asked Chicago-area residents if they have ever considered setting up a will and what is or has motivated them to take that important step to protect their family and legacy.

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Top 5 Tax Tips for 2010

Friday, February 5th, 2010

Every year brings with it new tax challenges and advantages. 2010 is certainly no exception. Here are the top five considerations you should make to protect your legacy this year.

• Get a Roth IRA: In 2010, everyone qualifies and everyone can spread the tax burden over a two-year period. And, get this: you can undo it if you change your mind.
• Unload real estate: Capital gains taxes will most likely increase over the next few years, so pay it now if you can by selling burdensome real estate. If you’ve have losses elsewhere from the lagging economy, they can offset your gains.
• Trust in Revocable Living Trusts: With the federal estate tax revoked, trusts are more essential than ever to protect your family from huge capital gains taxes. If you already have a trust, re-evaluate its effectiveness against the current tax laws.
• Start “gifting” your money strategically: Do your family a favor and start gifting small portions of their inheritance now. There’s a tax-free allotment every year.
• Re-evaluate your “valuation”: Your assets are not worth the same now as when you purchased them. Some assets are worth less and others have appreciated in value.

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Is 2010 the year to die? Not so fast…

Sunday, January 31st, 2010

Congress surprised us all by letting the federal estate tax expire in 2010. If you have assets of $1 million or more (that includes a home, stocks, and retirement investments), you need pay attention to this volatile situation. That’s because:

• Any large estates that potentially escape a federal estate tax in 2010 may cause inheritors other tax headaches, particularly in capital gains taxes.
• If the federal estate tax gets reinstated retroactively, the potential for law suits is imminent. Not to mention, many families may end up owing taxes that they simply can’t afford.
• Most states have their own estate or inheritance taxes. While Illinois’ $2 million exemption was repealed with the federal tax, there are not guarantees it won’t come back retroactively as well.
• As of today, the estate tax is still scheduled to be back with a vengeance in 2011, at only a $1 million exemption.

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