1.  CONGRESS TO ADDRESS
EXPIRING TAX PROVISIONS AND KMR Tax 2010
BUSH TAX CUTS ............... 1 Planning
 YEAR-END MOVES FOR
INDIVDUALS ..................... 2
 YEAR-END MOVES FOR
BUSINESS OWNERS ........... 3
Tax Planning
ADDRESSING THE TAX PLANNING & WEALTH PRESERVATION NEEDS OF
ENTREPRENEURS AND HIGH NET WORTH INDIVIDUALS focus
As we approach the year end, it’s again time to focus on year end
moves that you can make to save taxes in 2010 and the future.
The federal income tax environment for the future continues to be
uncertain, making now the time to take advantage of tax breaks
that Congress has provided before they disappear.
Congress Has Several Tax issues
to Address remain at the reduced rates of 10, 15,
25, 28, 33, and 35 percent. Qualified
President Obama announced on capital gains and dividends currently
December 6 an agreement with the will continue to be taxed at a
GOP to extend the Bush-era maximum rate of 15 percent (zero
individual and capital gains and percent for taxpayers in the 10 and 15
dividend tax cuts for all taxpayers percent income tax brackets). Many
for two years. The White House- business tax extenders expired at the
brokered plan would also provide end of 2009. At the time this Tax
for a one-year payroll tax cut, 100 Briefing was prepared, it appeared that
percent bonus depreciation for 2011, the president’s plan includes extending
extenders relief, and a top federal some, and possibly all, of the expired
estate tax rate of 35 percent with a business tax incentives.
$5 million exclusion. The
president’s package is expected to The president’s compromise plan with
pass Congress before year-end, the GOP would provide for a will apply in your particular situation,
although certain modifications may maximum estate tax rate of 35 percent but you will likely benefit from many of
be made to garner additional support and a $5 million exclusion amount for them. We can narrow down the specific
by key Democrats. two years, through December 31, 2012. actions that you can take once we meet
with you to tailor a particular plan. In
The President’s plan includes many We have compiled a list of actions that the meantime, please review the
extenders of the Bush-era tax cuts can help you save tax dollars if you act following list and contact us at your
through December 31, 2012. Here before year-end. These moves may earliest convenience so that we can
are a few examples. benefit you regardless of what the advise you on which tax-saving moves
lame-duck Congress does on the major to make. ♦ ♦ ♦
The individual income tax rates will tax questions of the day. Not all actions

2. BREAKING
Year End Moves for NEWS:
Individuals Alternative
Minimum Tax
before the end of 2010 Additionally,
if you are facing a substantial tax credits
penalty for are available for
underpayment of installing energy
estimated tax and the generating equipment
increased withholding (such as solar electric
option is unavailable or panels or solar hot
won't sufficiently water heaters) to your
 Increase the amount address the problem. home (this break stays An AMT “patch” also would
you set aside for next year Income tax will be on the books through be part of the president’s
in your employer's health withheld from the 2016). package. The patch is
flexible spending account distribution and will be intended to prevent the AMT
(FSA) if you set aside too applied toward the taxes • Convert your from encroaching on middle
little for this year. Don't owed for 2010. You can traditional IRA into a income taxpayers by
forget that you cannot set then timely roll over the Roth IRA if doing so is providing higher exemption
aside amounts to get tax- amounts and other targeted
gross amount of the expected to produce
relief for 2010 and 2011.
free reimbursements for distribution, as better long-term tax Without this patch, which
over-the-counter drugs, increased by the amount results for you and your had expired at the end of
such as aspirin and of withheld tax, to a beneficiaries. 2009, an estimated 21
antacids (2010 is the last traditional IRA. No part Distributions from a million additional households
year that FSAs can be used of the distribution will Roth IRA can be tax- would be subject to its reach.
for nonprescription drugs). be includible in income free but the conversion
for 2010, but the will increase your and (2) held for more
• Realize losses on stock withheld tax will be adjusted gross income than five years. In
while substantially applied pro rata over the for 2010. However, you addition, such sales
preserving your investment full 2010 tax year to will have the choice of won't cause AMT
position. There are several reduce previous when to pay the tax on preference problems.
ways this can be done. For underpayments of the conversion. You can To qualify for these
example, you can sell the estimated tax. either (1) pay the tax on breaks, the stock must
original holding, then buy the conversion when be issued by a regular
back the same securities at • Make energy saving you file your 2010 (C) corporation with
least 31 days later. It may improvements to your return in 2011, or (2) total gross assets of
be advisable for us to meet main home, such as pay half the tax on the $50 million or less,
to discuss year-end trades putting in extra conversion when you and a number of other
you should consider insulation or installing file your 2011 return in technical requirements
making. energy saving windows 2012, and the other half must be met.
or buying and installing when you file your
• Increase your an energy efficient 2012 return in 2013.  Take required
withholding if you are furnace, and qualify for minimum distributions
facing a penalty for a 30% tax credit. The • Purchase qualified (RMD) from your IRA
underpayment of federal total (aggregate) credit small business stock or 401(k) plan (or
estimated tax. Doing so for energy efficient (QSBS) before the end other employer-
may reduce or eliminate improvements to the of this year. There is no sponsored retired plan)
the penalty. home in 2009 and 2010 tax on gain from the if you have reached
is $1,500. Unless sale of such stock if it is age 70 1/2. Failure to
• Take an eligible Congress acts, this tax (1) purchased after take a required
rollover distribution from a break won't be around September 27, 2010 and withdrawal can result
qualified retirement plan after this year. before January 1, 2011, in a penalty of 50% of

3. the amount not withdrawn. A temporary tax law • Make annual exclusion gifts before year
change waived the RMD requirement for 2009 only, end to save gift tax (and estate tax if it is
but the usual withdrawal rules apply full force for reinstated). You can give $13,000 in 2010 or 2011
2010. So individuals age 70 1/2 or older generally to an unlimited number of individuals free of gift
must take the required distribution amount out of their tax. However, you can't carry over unused
retirement account before the end of 2010 to avoid the exclusions from one year to the next. The transfers
penalty. If you turned age 70 1/2 in 2010, you can also may save family income taxes where income-
delay the required distribution to 2011, but if you do, earning property is given to family members in
you will have to take a double distribution in 2011— lower income tax brackets who are not subject to
the amount required for 2010 plus the amount the kiddie tax. ♦ ♦ ♦
required for 2011. Think twice before delaying 2010
distributions to 2011—bunching income into 2011
might push you into a higher tax bracket or have a
detrimental impact on various income tax deductions
that are reduced at higher income levels.
Year End Moves for
Business Owners
• Hire a worker who has been unemployed for at
least 60 days before year end if you are thinking of
adding to payroll soon. Your business will be
exempt from paying the employer's 6.2% share of
the Social Security payroll tax on the formerly property, and retail improvements). Note that at tax
unemployed new-hire for the remainder of 2010. return time, you can choose not to use expensing
Plus, if you keep that formerly unemployed new-hire (or bonus depreciation) for 2010 assets. This is
on the payroll for a continuous 52 weeks, your something to consider if tax rates go up for 2011
business will be eligible for a nonrefundable tax and future years, and you'd rather have more
credit of up-to-$1,000 after the 52-week threshold is deductions after 2010 than for 2010.
reached. This credit will be taken on the business's
2011 tax return. In order to be eligible, the formerly • Set up a self-employed retirement plan if you
unemployed new-hire's pay in the second 26-week are self-employed and haven't done so yet.
period must be at least 80% of the pay in the first 26-
week period. • Increase your basis in a partnership or S
corporation if doing so will enable you to deduct a
 Put new business equipment and machinery in loss from it for this year. A partner's share of
service before year-end to qualify for 50% bonus partnership losses is deductible only to the extent of
first-year depreciation allowance. Under the his partnership basis as of the end of the
President’s plan, bonus depreciation may increase to partnership year in which the loss occurs. An S
100% for 2011; therefore, deferring such purchases corporation shareholder can deduct his pro-rata
until 2011 may be preferable in certain situations. share of an S corporation's losses only to the extent
of the total of his basis in (a) his S corporation
 Make expenses qualifying for the $500,000 stock, and (b) debt owed to him by the S
business property expensing option. The maximum corporation.
amount you can expense for a tax year beginning in
2010 is $500,000 of the cost of qualifying property • Consider whether to defer cancellation of debt
placed in service for that tax year. The $500,000 (COD) income from the reacquisition of an
amount is reduced by the amount by which the cost applicable debt instrument in 2010. The business
of qualifying property placed in service during 2010 can elect to elect to have the COD income included
exceeds $2 million. Also, within the overall in gross income ratably over five tax years
$500,000 expensing limit, you can expense up to beginning with the fourth tax year following the tax
$250,000 of qualified real property (certain year in which the repurchase occurs (i.e., beginning
qualifying leasehold improvements, restaurant with 2014). ♦ ♦ ♦

4. Conclusion
These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can
tailor a particular plan that will work best for you. ♦ ♦ ♦
For the latest discussions on the Obama Tax Cut Deal and other tax developments, join
the Klein Mendez & Rothbard LLC group on LinkedIn
http://www.linkedin.com/groups?gid=3660733&trk=hb_side_g
www.kmr-cpa.com
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Phone: 305-937-0330 Phone: 305-742-2800
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Email: mrothbard@kmr-cpa.com Email: emendez@kmr-cpa.com