March, 2009
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

We all know that taxes will be changing sometime in the near future. Income taxes for most of our clients will be going up, estate tax exemptions may be frozen at their current levels, taxes on investments will be changing, and taxes for closely held family businesses will also have new twists.

Outlined below is some of the current information coming from Washington that we should all be aware of, based on what we know today. I will keep you posted as additional changes develop pertaining to individual and business taxes.

Income Taxes

  • The highest income tax percentage will probably rise from 35% to 39.6% in either 2010 or 2011.
  • Taxes on long term capital gains will increase from the current 15% to 20% in either 2010 or 2011.
  • Qualified dividends from corporations that are currently taxed at a maximum of 15% are scheduled to increase to the new rate of 39.6% in 2011.
  • There may be a limit on itemized deductions such as charitable donations and mortgage interest payments. The current proposal is to limit those deductions at 28% rather than 39.6%.
  • The government has eliminated the required minimum distribution from an IRA for 2009. If you want the income you can still take a payment, but it is now not required for this year.
  • In 2010, individuals with an income over $100,000 per year can roll their IRA retirement account into a Roth IRA and let it grow. The required income tax will be paid over a two year period, thus making it an excellent planning option for younger individuals. Older individuals, though, may not have enough time to recoup the income taxes in these types of accounts.
  • AMT will not be rescinded, but Congress may establish an inflation adjusted exemption amount near current levels.
  • Many states and cities will also be increasing taxes to deal with their deficits.

Estate Tax Planning

  • The estate tax exemption was $2 million in 2008, and it increased to $3.5 million in 2009. That new exemption will probably be frozen at that level for the next few years and then it could possibly increase with inflation. Federal estate tax over the exemption amount is still 45%.
  • The gift tax laws will not change much. The lifetime exemption of $1 million will stay the same and the annual gifting limit per person has increased from $12,000 to $13,000 in 2009.

Closely Held Company Planning

  • 50% bonus first-year depreciation will be retained for assets bought in 2009.
  • Up to $250,000 of assets being purchased can be expensed for income tax purposes in 2009.
  • Beginning in 2012 there is a government proposal to eliminate the use of the LIFO inventory valuation method.
  • There was a proposal last year to reduce business taxes from 35% to 30.5%, but that tax reduction has been eliminated.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .