October 28, 2008

No matter which candidate for U.S. President is sworn into office next January, it is likely that one of his first courses of action will be to propose modifications to tax rates, incentive programs and other government revenue schemes. Given the current economic insecurity, it is also conceivable that legislators may raise taxes in order to offset lower profitability, slower growth and an increase in the national debt. With this in mind, individuals and companies may want to act now in order to minimize the effects of potential tax changes.

Adjusting for a Potential Tax Increase

In anticipation that general and capital-gains tax rates may increase, there are a number of strategies you can implement before the end of the year in order to minimize tax liabilities over the near term:

  • C corporations may consider paying dividends from significant
    accumulated earnings

  • Businesses and individuals may be able to accelerate income (including salaries, bonuses and/or customer payments) into 2008

  • Individuals may choose to exercise taxable options now

  • Those turning 70-1/2 may decide to start taking IRA distributions now, rather than waiting until after April 15, 2009

Take Advantage of Expensing Capital Expenditures

Rather than amortizing major purchases, businesses and sole proprietors may consider expensing qualified expenditures.

Avoid the "Kiddie Tax"

Although the unearned income of minor or dependent children is taxed at the parents' typically higher tax rate, earned income is not subject to the so-called "kiddie tax." Therefore, business owners should consider hiring their children, whose income (generally less than that of their parents) will then be taxed at a lower effective rate.

Consider a New Qualified Retirement Plan

Individuals may be eligible for additional or new retirement plans beyond those in which they are currently enrolled, enabling them to shift some earnings into pre-tax income.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.