Re: 2009 Year-end Tax Planning - Investors

Dear Client:

With 2009 winding down, it is a good time to think about steps you can take with your investments to improve both
your financial position and your tax situation for the year. Year-end planning presents an opportunity to recognize
gains at low rates or to lower your tax bill by recognizing losses.

Long-term stock gains and qualified cash dividends continue to be taxed at favorable rates of 15 percent. For
lower-income investors in the 10 and 15 percent income tax brackets, a zero rate applies to stock gains and
dividend income. Long-term capital gains rates apply to stock (and other investments) held for more than one year.
Qualified dividend rates apply for stock held more than 60 days of a prescribed period around the dividend's record
date. Short-term gains are taxed at ordinary income rates and apply to stock held for one year or less.

These rates continue through 2010, but with federal tax revenues declining, they may not be extended beyond
2010. If investment considerations justify selling your stock, it may be smart to cash in your gains at these
favorable rates in 2009. You may also want to invest in dividend-paying stocks to take advantage of these
favorable rates. The lower rates do not apply to interest income.

On the other hand, if your stock has declined in value, it may make sense to sell it and recognize the loss. Capital
losses have to be netted against capital gains, but net capital losses can be deducted dollar-for-dollar against
ordinary income, up to $3,000 a year. Excess capital losses above $3,000 are carried over to the following year and
can be deducted against another $3,000 of ordinary income (after netting with any capital gains in the succeeding
year).

If you hold stocks with both gains and losses, you can sell the appreciated stock in 2009, to include the income at
low capital gains rates, and then sell the depreciated stock in the following year, when the losses could offset
ordinary income taxed at a high rate. Other strategies may apply depending upon the extent of your gains and
losses.

If you expect the market to improve, you may want to hold on to your stock, even if it has dropped in value. It may
be tempting to sell the stock, to recognize the loss, and then repurchase the same stock. However, the tax code will
not let you take the loss if you purchase identical stock within 30 days before or after you sell your shares. So
another option is to sell your shares, wait 31 days, and then repurchase the stock.

Another type of investment that some individuals hold is an interest in a passthrough entity, such as a partnership or
S corporation. If the entity has losses for 2009, the losses flow through to you, the investor. To ensure that you can
deduct the losses fully, you may want to increase the basis of your interest. You can do this by making a capital
contribution to the partnership or S corporation. You can also increase your S corporation basis by lending money
to the corporation, and can increase your partnership basis by increasing your share of partnership liabilities.

Another consideration is the passive activity rules. If you do not materially participate in the entity's management,
the losses can only be deducted against passive activity gains. You may want to increase your involvement in
management so that you can use the losses to offset ordinary income.

As you can see, there are many considerations in deciding how to manage your stock portfolio as well as your
other investments. If you would like more information on how year-end planning can apply to your individual tax
situation, please contact this office for an appointment.

Sincerely yours,