Tax Planning ideas to consider before 2010 comes to a close

1. Planning
2010 year-end
planning guide
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Tax planning strategies 3
Investment planning ideas 4
Estate planning 5
Charitable planning 6
Retirement planning 7
Year-end planning checklist 9

2. Clarity in tax rates and related provisions may emerge from the lame
duck Congress that returns following this year’s midterm election,
or it may not. Clarity may come when the new Congress is seated in
January, 2011, or it may not.
Despite this uncertainty, there are a number of ideas that you may
want to consider before 2010 ends. Your UBS Financial Advisor can
work with you and your tax advisors to help you decide what strategies
may be appropriate. Clients are encouraged to remain attentive to the
deliberations in Washington, D.C., over the next few months.
As 2010 winds to a close, individuals are confronted with an uncertain
framework around federal income taxes, making an ordinary year-end
planning process more challenging than ever.
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3. 3
Tax planning strategies
• Carefully time your loss recognition.
Consider selling assets this year in taxable (i.e.,
nonretirement) accounts that have generated
losses to use those losses to offset taxable gains.
If, however, you anticipate large short-term gains
in 2011, you may consider delaying tax loss
harvesting of short-term losses until next January,
being careful not to delay any sales so long that
the holding period exceeds one year, which
would convert the more favorable short-term
losses into long-term losses.
• Net gains and losses. Match your short-term
gains and losses and long-term gains and losses
to determine your capital gains and loss carry
forwards. Note that you can use $3,000 of net
capital loss to offset ordinary income for 2010
as well.
• Trigger capital gains tax. If, however, you
believe that income tax rates will rise next year,
you may wish to sell assets by December 31 to
trigger long-term capital gains tax at the present
15% rate, and defer losses until next year.
• Review your deductions. To accelerate
deductions, pay deductible expenses
(unreimbursed medical expenses, property tax)
in 2010, or defer those deductions to 2011
for a greater benefit if income tax rates rise.
• Roth IRA conversion. Discuss with your Financial
Advisor whether it makes sense to convert a
traditional IRA to a Roth IRA. If you convert by
December 31, you can recognize the income in
2010 or elect to declare 50% of the income in
2011 and 50% in 2012. It may make sense in
your situation to recognize all of the income in
2010 in anticipation of potentially higher income
tax rates in the near future. However, if you
believe that current tax rates will be extended, you
may want to defer the conversion itself—not just
the recognition of income—until 2011 because
you would then have until October 15, 2012 to
decide to recharacterize (or undo) the conversion
if circumstances change.
• AMT liability. Review with your tax advisor
to see where you stand for 2010 relative to
the alternative minimum tax (AMT). If you are
subject to AMT, and you have the ability to defer
income from 2010, consider deferring if you may
not be subject to AMT in 2011. If you are not
subject to AMT, consider accelerating income
(like exercising ISOs) that would have negative
AMT consequences. Also consider accelerating
deductions (like property tax payments) that
would not provide an equivalent tax benefit in a
year in which you were subject to AMT. In short,
any analysis of the merits of accelerating or
deferring income or gains should take potential
AMT liability into account.
In addition, Congress has not yet passed the
AMT “patch” to raise the exemption limit for
2010. If the exemption is not extended, then in
2010 and future years, the AMT exemption is
scheduled to revert to pre-2001 levels, which
will affect many more taxpayers.
Take note:
Absent congressional action, the following
federal income tax changes will occur on
January 1, 2011:
• The 33% and 35% individual tax brackets
will increase to 36% and 39.6%. In addition,
the lowest bracket (10%) will be eliminated.
• The maximum tax rate for long-term capital
gains will increase from 15% to 20%
for individuals, with low income filers
paying 10%.
• Dividends will cease to be taxed at capital
gains tax rates and will again be taxed at
ordinary income tax rates (as high as 39.6%).
• Beginning in 2013, an additional 3.8%
Medicare tax on net investment income will
be assessed on: individuals with modified
adjusted gross income (MAGI) exceeding
$200,000; married couples with MAGI
exceeding $250,000; and trusts with MAGI
exceeding approximately $12,000.
• Also beginning in 2013, an additional 0.9%
Medicare tax will be assessed on wage
income over $250,000.

4. 4
• Options. You may also wish to exercise
nonqualified stock options (NQSOs) in 2010
in anticipation of potentially higher income tax
rates next year.
• Bonus depreciation. Recent legislation
has revived the first-year bonus depreciation
allowance for property placed in service through
2010. For certain tangible property, taxpayers
may deduct a bonus depreciation amount equal
to 50% of the property’s depreciable basis, over
and above regular depreciation. As a result,
the bonus allowance permits businesses to
write off their costs more quickly. Unlike other
depreciation allowances, bonus depreciation
applies to businesses of all sizes. However,
the new law carries a very short window of
opportunity—qualifying equipment must be
purchased and placed into service on or before
December 31, 2010.
Investment planning ideas
• Wash sale rule. In general, the “wash sale”
rule prohibits you from recognizing losses if you
purchase substantially identical stock or securities
within 30 days before or after the sale. If you
don’t want to wait 30 days to buy the same
stock or security, you may consider replacing the
investment you sold at a loss with an exchange
traded fund (ETF) tied to the company’s industry
or sector. In this way, the ETF effectively serves as
a temporary proxy for individual stock holdings
and still enables you to recognize the loss on
your original position. You can also replace
actively managed mutual fund shares sold at a
loss with an ETF, but if you plan to substitute
one ETF for another, make sure the funds track
different indexes.
Wash sale dates to note
November 30 Last day to “double up” for
2010. Doubling up on a security
means that you buy a second lot
of a security in the same amount
as the original holding, thereby
allowing you to recognize a
loss by selling on December 31
without missing any potential
appreciation during the wash
sale period.
December 31 Last day to sell a security in 2010
for a loss.
January 31 If you sold a security for a loss on
December 31 without previously
“doubling up,” you must wait
until January 31, 2011 or later
to repurchase the same or
substantially similar security in
order to avoid the wash sale rule.
• Fixed income gains. This year has been
another strong year for bonds and bond funds
as interest rates are at or near all-time lows. As
such, we suggest investors pay close attention
to embedded gains in your individual bond
positions or bond mutual funds. If triggering
gains otherwise makes sense, consider selling
appreciated bonds to trigger the long-term capital
gain. Assuming you can repurchase the same
bond, your new basis would be the new purchase
price. Because bonds mature at a price of 100,
and your basis would be over 100, you can
amortize the premium over the remaining term
of the bond, in effect realizing a capital loss each
year that can be used to offset other income. This
strategy works best for corporate bonds, less so
for Treasuries and not at all for municipal bonds
due to their respective tax treatments.
Take note:
The UBS Office of Public Policy believes it is likely that the current rates under the “Bush tax cuts,”
including those for wealthy taxpayers, will be extended through 2011. The issue will be dealt with in the
lame duck session or early next year (and if the tax rates expire on December 31, Congress could address
them retroactively in January or February). However, even if the current rates are extended for a year,
most experts believe that, with budget deficits and national debt soaring, tax rates will rise in the future.

5. 5
• Concentrated stock positions. The prospect
of higher tax rates for the foreseeable future
means that investors should consider accelerating
planned divestment before December 31. If you
believe that income tax rates will rise in the near
future, you might want to consider accelerating
planned divestment/diversification. As the capital
gains rate increases, the tax cost of diversifying
out of a position also increases.
• Portfolio review. The end of the year is an
excellent time to re-evaluate the goals of your
portfolio, the risk level you are comfortable with
and the liquidity events that are going to shape
the next 2, 5, 10+ years of your life. The volatility
of the past three years may have given you pause
or concern, and it is important for you to discuss
these concerns with your Financial Advisor. This
can not only help give you peace of mind, but
can be valuable in terms of identifying the best
tax planning techniques to utilize.
Estate planning
• Annual exclusion gifts. Make annual exclusion
gifts by December 31. Each person may make
annual, gift tax-free gifts of $13,000 ($26,000
for a married couple) to any number of
individuals.
• Taxable gifts. Consider making taxable gifts
to take advantage of the 35% gift tax rate
in effect for 2010. This would apply to those
who have used their entire $1 million lifetime
gift tax exemption amount and wish to make
taxable gifts in excess of that amount. Note that
it is possible Congress could enact retroactive
legislation to reinstate in 2010 the 45% gift tax
rate in effect in 2009.
• Gifts to grandchildren. Consider making gifts
to grandchildren in light of the repeal of the
generation skipping transfer (GST) tax in 2010.
• Funding education through 529 plans.
Consider funding 529 plans by December 31 to
apply 2010 annual gift tax exclusion treatment
to the contributions. You can “front-load” 529
plans by making five years’ worth of annual
exclusion gifts to a 529 plan. In 2010, you could
transfer $65,000 ($130,000, for a married
couple) to a 529 plan without generating gift tax.
• Opportune estate planning strategies. Take
advantage of historically low interest rates by
establishing Grantor Retained Annuity Trusts
(GRATs) or entering into intra-family loans. For
GRATs created in November, the hurdle rate
is 2.0%, meaning that assets inside the trust
need only to grow in excess of 2.0% in order to
succeed in transferring wealth. Note that there
is proposed legislation in Congress to restrict the
ability to use short-term, zeroed-out GRATs in the
future. The proposed bill would require:
1) A 10-year minimum term for GRATs
2) A remainder interest, valued at inception,
to be greater than zero—thereby eliminating
the use of “zeroed-out” GRATs that do not
generate a taxable gift
3) Annuity payments to be structured so that
the payments do not decrease over time
• Family limited partnerships. If appropriate,
consider discussing with your attorney or tax
advisor whether to establish a family limited
partnership or family limited liability company
in advance of possible legislation that could
curtail the ability to take valuation discounts
on transfers of interests in these sorts of entities
for gift or estate tax purposes.
Take note:
Absent congressional action, the estate and
generation-skipping transfer (GST) taxes are
scheduled to return in 2011, with a $1 million
estate tax exemption per person and a $1
million GST exemption per person (indexed for
inflation since 1998), with a top rate of 55%.
Similarly, the gift tax exemption is scheduled to
be $1 million—no change from 2010—also with
a top rate of 55%.

6. 6
Charitable planning
• Charitable income tax deduction. In order to
obtain an income tax charitable deduction for
2010, gifts must be made by December 31. If
the gift is property that will require an appraisal
(generally required for gifts of property with a
value in excess of $5,000, other than publicly
traded stock), you should start the process as
soon as possible. Also, it may take several weeks
for a transfer of stock via stock certificate or
stock power to be complete, so you should plan
ahead. Note that the phase-out rules for itemized
deductions do not apply in 2010 (but are
scheduled to return in 2011), so federal income
tax deductions can be optimized in 2010.
• Timing of charitable gifts. Consider the timing
of charitable gifts—if the deduction could benefit
you more in 2011, it may make sense to wait to
make the charitable gift in 2011.
• Assets to give to charity. To avoid capital gains,
you may want to consider giving appreciated
property to charity (as opposed to selling the
property, recognizing the gain and contributing
cash to charity). Most people do not think of
fixed income holdings when looking at low basis
assets to give to charity. In part, this is because
fixed income assets historically tend to have
relatively small capital gains. However, the recent
interest rate environment has created significant
capital gains in many individual bonds and bond
funds. If you believe interest rates are likely to
rise in the future, now may be an opportune
time for gifting fixed income assets to charity,
which may have additional benefits if done as
part of an asset reallocation strategy.
• Donor advised funds. You may want to
consider establishing a donor advised fund with
UBS. Transferring assets to a donor advised fund
can allow you to receive an immediate charitable
income tax deduction (at the maximum amount
allowed for gifts to public charities) while
affording you time to decide on the ultimate
charitable beneficiaries.
• Charitable Lead Annuity Trust. Consider
establishing a Charitable Lead Annuity Trust
(CLAT) to take advantage of low interest rates.
A CLAT provides for annual payments to charity
for a given term, with the remainder generally
passing to a continuing trust for your children.
As with GRATs, CLATs perform best when interest
rates are low.
• Private foundations. Managers of private
foundations may wish to discuss the following
ideas with their tax advisors to optimize the
efficiency of the foundation:
– In order to avoid the 1-2% excise tax on net
investment income, consider making grants
of low basis stock in lieu of selling the stock
to raise cash for the grants and thereby
triggering gains.
– Consider offsetting gains with losses. Private
foundations cannot carry forward capital
losses. If your foundation has significant losses,
it can sell securities that have appreciated,
recognize the gain and buy the securities
back in order to establish a higher basis in
Take note of limitations on the charitable
income tax deduction:
• Gifts to public charities. Contributions
of cash can be deducted up to 50% of the
taxpayer’s adjusted gross income (AGI), and
the full fair market value of other appreciated
property can generally be deducted up to
30% of AGI.
• Gifts to private foundations. Contributions
of cash can be deducted up to 30% of AGI,
and the full fair market value of publicly
traded stock (if owned for over a year) can be
deducted up to 20% of AGI. The deduction
for gifts of other appreciated property may be
limited to the taxpayer’s cost basis.

7. 7
the assets. Note that the wash sale rule does
not apply here because the foundation is
recognizing a gain (not triggering a loss).
– Note that approximately 5% of the value of
the foundation’s net investment assets for
2009 must be distributed for charitable and
administrative purposes by December 31,
2010. Accordingly, foundation managers
should determine liquidity needs to meet
the payout requirement.
– Consider making a “conduit election” so
contributions to the foundation can be treated
as though made to a public charity for income
tax purposes. This can be useful if:
— The foundation will distribute all of the
contributions it receives
— You have contributed assets to the
foundation other than publicly traded stock
and do not want your deduction limited to
your cost basis
— The foundation has “banked” excess grants
from prior years (when the foundation
distributed more than the required 5%)
– Consider granting to a donor advised fund if
you run out of time and can’t decide which
charities should receive some or all of the 5%
grant requirement.
– To establish a private foundation in 2010,
UBS—through its relationship with Foundation
Source—can facilitate the establishment if you
inform us of your intent before December 20,
2010. Contact your Financial Advisor for more
information.
Retirement planning
• Maximize contributions to retirement
accounts. Make 2010 contributions to Roth
or traditional Individual Retirement Accounts by
April 15, 2011.
The following chart summarizes the 2010 and
2011 annual contribution limits to IRAs and
retirement plans:
Plan Under
age 50
Age 50
or older
IRA (traditional* or Roth) $5,000 $6,000
401(k), 403(b),
457(b), SAR-SEP**
16,500 22,000
SIMPLE** 11,500 14,000
* The maximum deductible contribution may be
reduced depending on your MAGI.
** Salary deferral contributions.
• RMDs. Required Minimum Distributions (RMDs)
generally must be taken from retirement plans
by December 31 (except for the first RMD
which can be delayed until April 1 of the year
following the year in which the taxpayer turns
age 70½, and if the taxpayer is still employed
and the employer’s plan permits RMDs to begin
at the later of 70½ or retirement). The RMD
rules apply to IRAs and all employer-sponsored
retirement plans, including profit-sharing plans
and 401(k), 403(b) and 457(b) plans. If you have
more than one IRA, you can take the RMDs for
multiple IRAs from one account. The same holds
true for 403(b) plans, but not for other types of
employer-sponsored retirement plans, like 401(k)
and 457(b) plans.

8. 8
• Asset selection for RMDs. When selecting
assets for an RMD, you may wish to consider
the transfer of an appreciated bond held in the
retirement account. If a bond currently held in
a retirement plan has a high coupon, it may
also have an elevated (premium) price. If the
bond is distributed as part of an RMD, your
basis in the bond will be its (premium) price on
the date of distribution. As discussed above in
the “Fixed income gains” section, you can then
amortize that premium over the remaining term
of the bond, in effect realizing a capital loss
each year. The high coupon would be earned
in a taxable account rather than in the tax-free
environment of the IRA, however, so that adverse
consequence will need to be weighed against the
benefit of the capital loss.
• Charitable rollover from IRA. Note that
Congress did not extend into 2010 the ability for
individuals over age 70½ to transfer in 2009 up
to $100,000 from an IRA to a charity free from
tax. It is possible that Congress could act before
year-end to extend this provision for 2010.

9. Executives and other individuals subject
to high income tax brackets
Review your deductions
Consider a Roth IRA conversion
Monitor your AMT liability
Consider exercising nonqualified stock options
Investors
Carefully time your loss recognition
Net short- and long-term gains and losses
Recognize capital gains if tax rate increase
is a concern
Watch out for the wash sale rule in
recognizing losses
Consider recognizing fixed income gains
Review your portfolio for your current risk
level and circumstances
Wealth transferors
Utilize the annual exclusion
Consider taxable gifts
Consider gifts to grandchildren
Fund education through 529 plans
Utilize GRATs and other opportune
estate planning strategies
Philanthropists
Review optimal timing of charitable gifts
Ensure a 2010 tax deduction, if intended
for this year
Select optimal assets to give to charity
Consider donor advised funds
Take advantage of low Interest rates
through CLATs
Business owners, employees and retirees
Consider benefits of bonus
depreciation to business
Contribute to retirement plans
Withdraw RMDs
Select optimal assets for RMDs
Monitor legislation for charitable
rollovers from IRAs
UBS Financial Services Inc.
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UBS Financial Services Inc. and UBS International Inc. are subsidiaries of UBS AG.
UBS Financial Services Inc. does not provide legal or tax advice. Any discussion of tax matters contained herein is not intended to be used,
and cannot be used or relied upon, by any taxpayer for the purpose of (i) avoiding penalties under the Internal Revenue Code, or
(ii) promoting, marketing or recommending to another party any transaction or tax-related matter(s). 529 Plans are sold via Program
Descriptions (sometimes called Program Brochures), which contain detailed information regarding the plan, risks, charges and tax
treatment. Clients can obtain a free Program Description of their choice from the investment management company sponsoring a 529
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which contains detailed information about an ETF, including its investment objectives, risks, charges and expenses. For a free copy of the
prospectus, clients should contact their Financial Advisor. Read the prospectus carefully before investing.
2010 year-end planning checklist
©2010UBSFinancialServicesInc.Allrightsreserved.MemberSIPC.
The following tips should be reviewed with your legal and tax advisors in light of your individual
circumstances before implementing
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