Thomas Huckabee CPA Inc. Quarterly Newsletter Q4 2009

U.S. Law and Your Tax Planning – What You Need To Know
Given what's occurring in Washington, D.C. right now, you owe it to yourself to be familiar with the current and upcoming tax law changes that will affect you. What you don't know can certainly hurt you, perhaps short-circuiting your ability to fund children's college educations, retire, purchase your dream home, or do anything else that you've counted on a nest egg funding.

It's no secret that our country has a $1.6 trillion deficit, and the cost attached to the proposed health care reform is $1 trillion. Both those realities imply that higher taxes are on the horizon... regardless of the rhetoric coming out of Congress. The money has to come from somewhere, and American taxpayers are likely to foot the bill. This makes tax planning all the more important, so you don't get blindsided and suffer the consequences.

Here are a few things you should know about the tax landscape:

• Paul Volcker's Tax Commission is in the process of reviewing taxes, and assessing two requests from President Obama: (1) taxes can't be raised on anyone earning under $250,000 and (2) no changes should be made until 2011.
• Tax credits for 2009 include those for first-time homebuyers, sales tax deductions on car purchases, extra deductions for business equipment purchases, and higher exemptions from Alternative Minimum Tax.
• For the first time, if you earn more than $100,000, you'll have the opportunity to have a Roth IRA in 2010. Low investment values may make it more advantageous to do conversions in January rather than December (and more Roth IRA information is provided below).
• Tax rates will rise about 10% automatically in 2011 unless Congress takes action before then.
• The current 15% capital gains rate will rise to 20% in 2011, meaning that you'll have to hold on to your assets five years longer, on average, to make up the tax difference.

There's no need to challenge yourself to become familiar with all the tax laws that are relevant to you; that's our job. We can forecast your 2009 and 2010 taxes and work with you to find ways to help you lower them. All we need is your latest pay stub, bank and brokerage statements, and an estimate of your 2009 business and/or rental income and losses. If you're already a client, we'll also need to know if you've made any major changes to your deductions; if you're a new client, we'll need your 2008 tax return.

Our expertise will make it easy for you to make smart decisions today, based on knowing what's coming down the road. Having a tax planning strategy can help ensure your healthy financial future.

Roth IRAs – Changes Coming in 2010
The current restrictions that prevent those making more than $100,000 from having Roth IRAs will be lifted in 2010. As you may know, Roth IRAs offer a number of benefits over traditional IRAs, although you must pay taxes on the amount converted from a traditional IRA to a Roth IRA.

Here are a few Roth IRA ABC's:

• All distributions are tax-free after a Roth IRA has been in existence for five years and you're over 59½ years old.
• The first distributions are tax-free even if it hasn't been five years and you aren't 59½.
• Roth IRAs don't require a minimum distribution after age 70½, like traditional IRAs.
• Heirs of Roth IRA holders inherit them tax-free; ordinary income tax must be paid on all inherited traditional IRAs.
• For 2010 only, the taxes due on traditional IRAs converted to Roth IRAs can be split and paid in 2011 and 2012 or paid in full in 2010.

Potentially rising taxes and low but rising investment values, combined with this tax change, really make it worth your while to consider opening a Roth IRA in 2010 or doing a conversion from a traditional IRA. We'll be happy to review your specific situation to determine applicability and walk you through the process to make it happen.

A Little "Numerology"
You see millions, billions and trillions used by the press everyday…but what do those terms mean? Many people underestimate their magnitude. If you measured these numbers in terms of seconds:

• 1 million seconds is a little over 11 days
• 1 billion seconds is just under 278,000 days (more than 31 years)
• 1 trillion seconds is more than 31,700 years (five times longer than our numeric system has existed)