On The Money

Year End Tax Planning – Four Important Tips For 2009 by Grace Allison of Northern Trust Corp.

Many analysts conclude that income tax rates will rise for higher-income households by 2011. Many experts believe the capital gains rate may rise from 15 to 20 percent and foresee a new 5.4 percent surcharge on income exceeding $1 million. With those possibilities in mind, here are some strategies to consider for 2009 and 2010. 

1) Recognize gains and losses

Consider recognizing substantial gains in 2009 and 2010. You could continue to harvest losses this year and next and plan to offset recognized gains with current capital losses as well as capital loss carry-forwards.

2)  Use tax-advantaged vehicles 

Remember the advantages of varied tax-advantaged vehicles, including 401(k) plans for retirement and Section 529 plans for college savings.

In 2009, employees younger than 50 can contribute as much as $16,500 to a 401(k). Those who are 50 or older can contribute an additional $5,500. Earnings on before-tax contributions accumulate tax-free until they are distributed.

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