We are a few days away from the beginning of an era of change. There are some things to do right now.

In 2009, some changes in our federal tax system are very likely to occur, and some are already in effect.

The federal estate tax exemption will rise substantially, from $2,000,000 to $3,500,000. This is a wonderful opportunity to shelter assets from federal estate tax, which seems likely to continue at a rate of 45 percent. Taking advantage of this change might require the shifting of assets between spouses. There are several ways of doing this, depending on how willing one spouse is to transfer assets to the other. There are some planning techniques that can be used to make transfers that are effective for estate tax purposes but do not transfer control of assets.

The gift tax annual exclusion has risen from $12,000 to $13,000 per year per donee. This isn’t a dramatic change, but for those who are able to engage in gift-giving programs, it’s an increased opportunity.

Under the current law, the federal estate tax will disappear in 2010 and then come back in 2011 with higher rates and with a $1,000,000 exemption. No one thought we would get this far without this crazy law being amended, and we now have just under 12 months to fix it. So, we should look for legislation this year, and who knows what it will include. If the present trend continues in Minnesota, we might have a professional comedian in the U.S. Senate, but he’ll have a lot of competition from the amateurs.

In the area of income taxes, we can expect to see scrutiny of various deductions and exclusions. This is often a method of raising taxes without increasing rates. When someone else’s deductions or exclusions are limited, it’s called closing loopholes. For example, early in the Reagan administration, the federal estate tax was amended to include retirement benefits in the taxable estate, perhaps the biggest tax increase of all time. But rates of tax didn’t change.

Alternative minimum tax remains a problem, with Congress applying an ineffectual bandage each year rather than finding a way to solve it. One of my partners sent around an e-mail toward the end of the year to remind people to make payments of estimated state taxes, to get a federal tax deduction, but another responded that the deduction was mostly taken away by alternative minimum taxes.

As with many areas of federal law (employment law and employee benefits law being prime candidates), 2009 promises to be a year in which tax laws will change. Whether or not it’s change we can believe in, it will be change to which we must and should pay attention.

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