Despite Assurances of Tax Cut Extensions by Congress, Americans Should Still Hedge Their Bets Until as Late as Possible
SAN MATEO, CA--(Marketwire - November 30, 2010) - Despite recent assurances that Congress will reach a resolution on tax cuts, there remains much uncertainty regarding large parts of the 2010 tax code. Consumer money resource Bills.com today advised individuals to begin preparing for the extension of tax cuts but to hold off on definitive action for as long as possible this year.
Many political and economic leaders have indicated that Congress will reach some agreement on the extension of Bush-era tax cuts this year. However, the specific cuts and final numbers are still open to negotiation. This makes it especially difficult for those who must make important decisions about investments, income and donations before the end of the year.
"The goal of tax planning is to maximize the money that stays in your wallet, but it's more difficult this year than most because of the uncertainty surrounding critical tax breaks," said Ethan Ewing, president of Bills.com. "Ideally, Congress should make a final tax cut decision before its holiday break, giving individuals an even shorter window than usual to act on their tax planning strategies."
The One Sure Thing
Even with so much confusion around taxes, there is one sure bet this year for taxpayers. In 2010, individuals owning an IRA can convert it to a Roth IRA and report the income from that transaction over two years, lowering their up-front obligation. For those considering a conversion, the good news is they don't have to wait on Congress. Regardless of tax cuts, this particular transaction can be amended next year to match the tax code. Specifically:
"It's the perfect mulligan," continued Mr. Ewing. "No matter what happens with the tax code or even the actual investment, you have options."
Strategies for Renewal of Tax Cuts
Most other tax decisions aren't as simple. However, individuals can begin to plan some basic strategies for the expected tax cut extensions. In this case, a renewal means that taxes will remain the same for the immediate future. These conditions mean that taxpayers should pursue two basic strategies:
1. Defer revenue to minimize taxable income for 2010, and push more income into the calendar year 2011 when it will be taxed at the same rate
2. Accelerate tax credits into 2010 to provide more deductions on your current return, minimizing your exposure for this calendar year
"Ideally, individuals can wait until a decision by Congress to make some of these moves," explained Mr. Ewing. "If not, it's a bit of a gamble. If Congress does not renew the tax cuts, then individuals should turn this advice on its head and accelerate revenue while deferring tax credits."
For more information about money saving strategies, please visit Bills.com. To ask a question of our money experts using our free advice service, please visit Ask Bill.
About Bills.com
Bills.com is the leading resource for free and personalized money help. Founded by a group of financial experts dedicated to helping consumers save time, money and stress, Bills.com is designed to give consumers confidence in making money decisions. The site offers useful information, powerful tools, and real money experts to give consumers the information they need in the way that they want it.
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