While most of the talk in Washington centers on health care and Afghanistan, there is a considerable amount of energy focused on financial reform to prevent another “market meltdown” we have seen over the last couple of years.

One piece of the debate is how to regulate advisors, brokers and planners.  Each currently has a different set of rules covering their behavior towards clients.  Brokers are held to a suitability standard which means they need to have a reasonable basis for the recommendation and “know their client.”  Additionally their  advice should be “incidental” to the transaction.   However, Advisors registered with the Securities and Exchange condition are held to a higher “fiduciary” standard that entails the advice be prudent and in the interest of the client.   This topic can be somewhat arcane, but a recent WSJ video does a nice job of pointing out the key differences.

http://link.brightcove.com/services/player/bcpid452319854?bctid=51077511001

Watch for more as congress debates on how best to regulate the advice providers.

As we approach the year end, several key deadlines loom.  Here are just a few of them:

Charitable Deductions

Unless extended by Congress, the exception that allows an individual age 70 ½ or older to transfer up to $100,000 a year directly to a qualified charity  without including the transfer as income ends 12/31/09.

Gifting Strategies:

You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $13,000 in 2009 to an unlimited number of individuals ($26,000 for a married couple) You cannot carry unused exclusions forward.

Home Credit for First Time Buyer

You must close your 1^st time home purchase by November 30^th, 2009 in order to be eligible for this credit. The credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.  This is a dollar for dollar credit and is refundable, meaning that even if you do not owe any tax you will receive a refund check for the amount qualified.  There are several eligibility requirement including your Modified Adjusted Gross income must be below $75,000.

End of year Energy Saving Tax Savings

Energy saving renovations like windows upgrade and installing energy efficient heating systems like solar or geo-thermal  systems are eligible for certain federal tax credits.   For minor renovations like windows you may be eligible for a 30% credit up to $1500.   However, the installation of energy generating equipment  a credit of 30% without an upper limit.

Car purchase

If you are planning to buy a car, do so before year-end in order to nail down a deduction for state sales tax and excise tax on the purchase.

Roth conversion

If your Modified Adjusted Income is below $100,000 you may be eligible for a Roth conversion.  Next year the limit will be lifted and everyone regardless of income will be able to convert.   Please see prior posts for background information on Roth conversions.

Let’s say you decide that the Roth conversion was a mistake, what can you do? 

 You can reverse the Roth conversion decision through recharacterization of the conversion.  By doing this,  the Roth conversion never happened.  You have until your tax filing deadline the year following the conversion to recharacterize the Roth conversion. 

Why would this happen?  Well, for one, the market sells off 30%  from when you converted  and consequently you ended up paying taxes on a higher amount than the current value.  You can then recharacterize , then reconvert at the lower value.