Newsletter
September 2010
Tax filing reminders
? September 15 ? Third quarter installment of 2010 individual estimated income tax is due.
? September 15 ? Filing deadline for 2009
tax returns for calendar-year corporations that received an automatic
extension of the March 15 filing deadline.
? September 15 ? Filing deadline for 2009 partnership tax returns that received an extension of the April 15 filing deadline.
? October 1 ? Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2010.
? October 15 ? Deadline for filing 2009 individual tax returns on extension.
Put year-end tax planning on your schedule
At the end of 2010, most of the provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001
will ?sunset? or expire. Only those provisions extended or made
permanent by later tax legislation will remain effective in 2011. That
fact makes year-end tax planning crucial for 2010. At the point of major
tax change, there are always opportunities and pitfalls that should be
analyzed if you want to keep your taxes as low as possible. With all the
tax changes that have already occurred and the many more sure to come
this year and next, you must review your tax situation now.
An important part of our service to you is helping
to identify actions you can take before year-end to minimize your
income tax bill. If you?d like to discuss tax-cutting options that fit
your particular situation, please contact us soon for a year-end tax
planning review.
Gambling winnings and losses can affect your tax bill
From time to time, some of you are lucky enough to
win a shilling or two at your local casino, the track, or your state
lottery. How will that gambling income impact your taxes?
All gambling winnings are taxable. This is true
for cash winnings and for the fair market value of any non-cash prizes
you might win (e.g., a car, vacation, etc.). Depending on your other
income and the amount of your winnings, your federal tax on such
winnings can go as high as 35%. You don?t receive any capital gains rate
break for gambling winnings, nor is there any income averaging to help
lower your tax bill.
However, you are entitled to a tax deduction for gambling losses. These are taken as an itemized deduction and your losses can?t exceed your winnings.
In other words, if you report no gambling income, you can?t report
gambling losses. When you gamble and lose, you must keep documentary
evidence of your losses (canceled checks, credit card charges, losing
tickets, ATM receipts, etc.). Many casinos keep track of your wins and
losses for electronic games if you belong to their player clubs.
But gambling deductions might not be all that
beneficial. You can?t simply ?net out? your winnings and losses. Instead
you must report your entire winnings as income, and use your losses as
itemized deductions. In many cases (especially for older taxpayers with
little income other than social security benefits, and with very few
itemized deductions), the losses might not be tax beneficial. If you
take the standard deduction rather than itemizing deductions, you will
receive no tax benefit whatsoever. However, the winnings could have a
significant impact on your income and may cause you to pay additional
taxes (such as making some of your social security benefits taxable when
they otherwise wouldn?t be).
Evaluate investment risk in your profile
If nothing else, the recent financial meltdown
provided an important learning experience and reinforced time-tested
concepts about risk in investing. None of these lessons will comfort
investors. However, we can still evaluate investment risks, at least on a
relative scale.
Conservative investors fear loss of principal
above all. They flock to lower-risk vehicles, such as Treasury bonds,
CDs, and money market funds, which are comparatively well known and easy
to understand. They?re willing to accept a lower ceiling on their
potential earnings in exchange for a lower risk of losing principal.
However, this reasoning ignores or underrates a different but no less
serious risk: that inflation will outstrip the earning power of the
investor?s savings, causing the principal to lose value even when
achieving its maximum rate of return. In the worst case, conservative
investors can outlive their investments.
Aggressive investors have no problem with risky
investments if the investments carry a high profit potential. The more
rational risk-takers recognize a corresponding loss potential and
accordingly risk no more principal than they can afford to lose. Their
less rational fellows may continue to risk everything until little or
nothing remains.
The wisest investors take a balanced approach.
Since most have neither the time nor the resources to analyze individual
investments in depth, they generally refer to advice and analysis
provided by outside sources. They also diversify their holdings so that
if one investment fails, their portfolios are not irreparably damaged.
The mix of assets in your own portfolio should
reflect your risk tolerance, but it also should be tempered by an
awareness that both extreme caution and excessive risk-taking can be
pathways to ruin. In general, no one stock or other single investment
(excluding mutual funds, which are bundles of investments) should
comprise a major part of your portfolio. Varying the types of assets in
your portfolio (foreign vs. domestic stocks, bonds, mutual funds,
Treasury bills) can provide an additional margin of safety.
You can?t escape risk in the world of investments,
but you should try to choose the investments that fit both your risk
comfort level and your personal financial situation.
This newsletter provides business,
financial, and tax information to clients and friends of our firm. This
general information should not be acted upon without first determining
its application to your specific situation. For further details on any
article, please contact us.
