End of 2009 Tax Planning

With the end of 2009 comes tax planning opportunities for individuals and business owners. Here is a list of tax issues to consider:

• Generally, if you owe a debt to someone and they cancel or forgive that debt, the cancelled amount may be taxable.
• Required Minimum Distributions (RMD's) for retirement accounts are not mandatory this year.
• The estate tax for 2009 is 45% on anything over $3.5 million. The tax is set to go to 0% for one year in 2010 but democrats are expected to change that law.
• Job hunting expenses such as miles driven, parking, tolls, long distance calls and other costs may be deductible.
• Home buyer tax credit is expanded to first time buyers and buyers who have been in their primary residence for five consecutive years out of the last eight.
• If you have capital losses you can carry them forward to offset capital gains you may have in 2009. The current capital gains rate is 15% for most tax filers.
• Even if you don't have capital gains you can use up to $3,000 of capital losses to offset ordinary income.
• Annual Gift Tax Exclusion is $13,000 per individual. This amount can be given to an unlimited amount of people.
• Sales tax and excise tax deduction on the first $49,500 for new vehicles purchased from February 17th to the end of 2009. Of course, there are income phase outs.
• Energy efficient tax credits which allow up to 30% of the cost of energy improvements to your main residence. The credit maxes out at $1,500 for a combined two year period.

ERISA Rule On Who Can Provide Investment Advice For Retirement Plans

There is confusion by employers and participants of who can legally provide investment advice to their 401k or other qualified retirement plans.

In September of 2009, the Department of Labor kept in tack the rule that only allows independent registered investment advisor's with a fiduciary responsibility to provide investment advice to plan participants. The reason for this rule is to separate product salesman (brokers, mutual fund and insurance companies) from providing advice because conflicts of interest may exist and they may steer plan sponsors and participants towards affiliated funds.

Registered investment advisor's (RIA) are regulated under the Investment Advisor's act of 1940 which requires RIA's to always act the client's best interest (fiduciary duty) and to disclose all conflicts of interest. RIA's are also paid directly by the client and do not receive commissions.

Plan sponsors and participants may believe they are getting one on one service but words mean things and brokers/insurance companies call the service they provide as "guidance" or "education." They know they can't give specific instructions to buy or sell a particular investment or provide asset allocation recommendations because they will run afoul of ERISA and internal compliance rules.

Many people including human resource managers and employees are realizing they are not receiving the advice they need to make their retirement plans successful. According to Hewitt & Associates, in 2007 twenty-nine percent of employers offer one-on-one financial counseling, up from 22% in 2005. I would venture to guess that this number has increased after last years financial meltdown and subsequent losses in clients retirement plans.