Ten steps you can take today to get ready for higher taxes

Gross federal debt has reached a record $13 trillion and the federal deficit has ballooned to stratospheric highs. Without making cuts to government services and entitlement programs enjoyed by many Americans, additional sources of revenue are likely needed to service this debt. As a result, income, estate and health care tax policies are headed for a change. Current government leaders have indicated that higher income taxpayers will be asked to shoulder most of the burden.

Investors who are concerned about future tax uncertainty may want to explore the following suggestions today:

1) Consider taking capital gains in 2010, before capital gains tax rates likely rise. If you are holding concentrated positions in low-basis stock, now may be a great time to take action to diversify with less burdensome tax consequences.

2) Explore tax-advantaged opportunities like converting Traditional IRAs to Roth IRAs. Just as one would diversify their investment portfolio, it may make sense to pay taxes on a portion of tax-deferred retirement assets at 2010 rates to reduce uncertainty down the road. Business owners who experienced a net operating loss may be able to convert tax-deferred retirement assets to a Roth IRA tax free.

3) Consider accelerating ordinary income from stock options, deferred compensation and long-term incentive programs if possible, into 2010. You may be in a lower bracket today than in future tax years.

4) Defer deductions. Look into deferring tax deductible expenditures, such as charitable contributions, until later years when they may be worth more to your bottom line.

5) Check your exposure to Alternative Minimum Tax. Work with your tax professional to identify tax opportunities unique to your situation.

6) Review your portfolio from a tax perspective. Look for diversification opportunities, potential credit issues, and to make sure the portfolio is structured not just to meet current needs, but also with an eye to future ordinary income tax changes.

7) Remain watchful for any potential tax changes in the state and/or municipality where you live. Your local government could raise taxes to make up for increased spending, lower tax-receipts, or lack of federal funding.

Review your current estate documents, the titling of your assets and your beneficiary designations with your attorney and/or tax professional sooner rather than later. If appropriate, revise them to provide planning flexibility in light of the uncertain estate tax landscape.

9) Revisit your life insurance policies. Where appropriate, explore strategies using life insurance to transfer wealth to beneficiaries income-tax free.

10) Keep things in perspective. Take precautions now, but don’t let the tax tail wag the investment dog.

For a more detailed overview of the tax changes on the horizon, RBC Wealth Management has published a comprehensive white paper: Preparing for a New Tax Environment – Guidelines to Help High Income Taxpayers Make Well-Informed Decisions. For a complimentary copy of this report, visit www.johnmsammut.com or e-mail john.sammut@rbc.com with the subject: Requesting Tax Report.

John Sammut helps individual investors, families and corporations protect their purchasing power and improve investment results. You can reach Sammut by telephone at (800) 343-3036, or visit him at www.johnmsammut.com

The opinions expressed in this report are those of the author and are not necessarily the same as those of RBC Wealth Management or its research department. RBC Wealth Management did not assist in the preparation of this report and makes no guarantees as to the accuracy or the reliability of the sources. This information should not be construed as a research report, as it is not sufficient enough to be used as the primary basis of investment decisions. Clients should work with their financial consultant to develop investment strategies tailored to their own financial circumstances. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.

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