November, 2010
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

This is going to be an interesting year-end because we are trying to make long term financial decisions and we don’t know what congress is going to do with income taxes or estate taxes.

The latest information that we have is that congress will “probably” extend the lower income tax rates for one or two more years. This means that if you are in the 35% tax bracket this year you’ll probably be in the same income tax bracket next year. Long term capital gains are at 15% this year and next year they may be the same.

Listed below are several different financial items that we should talk about before the end of 2010:

  • The stock market has finally started moving, so we need to look at your personal accounts and consider taking some long-term capital gains this year. We should also use any long term capital losses that might be available to offset those gains.
  • If taxes do increase, for those clients whose income will be lower next year, it might be better to take losses this year and push gains into 2011.
  • Some individuals have accumulated losses from prior years. We may want to use some of those losses to help offset any capital gains that would be appropriate to take yet this year.
  • We have helped several individuals switch their IRA accounts to Roth IRAs in 2010. For high income individuals this is the last year that you can switch to a Roth. This is something everyone should consider before the end of the year, making sure that either this idea fits your situation or it does not. If income taxes over the next 10 or 20 years are going to be higher, then putting some of your retirement assets into a Roth IRA where you can receive benefits income tax free might be a good idea.
  • If you have a higher income from salary and bonuses in 2010 we may want to make sure that you have made the appropriate estimated tax payments before the end of the year to avoid penalties. We may also want to review this idea with your CPA firm to make sure that they have all of the information. You want to make sure that you have paid into the IRS 90% of your estimate taxes for this year or 100% of the taxes you paid in 2009. However, if your income is over $150,000 we want to make sure that you have paid in 110% of last year’s tax.
  • If you are thinking about making a charitable contribution in 2010 we need to see if we can use appreciated stock for that gift. Using appreciated stock is always better than using cash. If your tax withholding is low at this point then perhaps making a charitable gift to a private family foundation, or a community foundation would be helpful to you.
  • If you have a mortgage on your primary home for more than $1 million, normally the interest on that mortgage over $1 million is not deductible. However, the IRS has issued a new revenue ruling 2010-25 which says that the interest on the next $100,000 of your mortgage is deductible as home equity interest. Note: If you have not refinanced your mortgage, you should consider it. Interest rates are in the 3’s for conforming loans ($417,000 or less) and in the 4’s for jumbo loans.
  • If you are contributing to a 529 college plan for children or grandchildren, you may want to make a deposit this year based on the current income tax rates. If income tax rates go higher next year, then making a contribution will be more expensive. Also, look for state tax deductions/credits for 529 contributions. If your state doesn’t offer one, you may be better off using another state’s plan.
  • Another big item that we are waiting on is a decision on future estate tax exemptions. In 2009 the exemption equivalent was $3.5 million for each client. In 2010 there are no estate taxes, and in 2011 the exemption is supposed to go to $1 million per person, unless congress passes a law reinstating the exemptions that we had in 2009. Most people in Washington tell us that the exemption will probably be reinstated, but we will have to wait and see what happens in the first quarter of 2011. Once we know what the exemptions are going to be in the future, then we need to talk about updating and making any necessary changes to your wills and trusts. For our high net worth clients, avoiding estate taxes is becoming harder to do every year, so we need to continue to revisit ideas on how to reduce estate taxes in the future.

We look forward to talking with many of you before the end of the year and discussing all of these ideas that pertain to you and your family situation. If you have questions please don’t hesitate to call any of us at your earliest convenience. November and December are going to slip by quickly and we want to make sure that we do not forget any items that are important to you.

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, call 1-888-849-9559 or e-mail Gary directly at .