Amid uncertainty, three sure things on tax plan

Maybe President Obama's $1.5 trillion tax hike proposal will pass Congress, and maybe -- as many instant analysts jumped to predict -- it won't.

He swears that if Congress doesn't hike taxes on the wealthy, he'll veto any other deficit-cutting, budget-cutting plan that ends up on his desk.

Either way, it's a reasonable bet that wealthy Americans will face higher federal taxes in the future. Even if Washington does nothing but sit on its hands, the Bush tax cuts are slated to expire at the end of 2012, raising tax rates on high income taxpayers.

Obama's latest approach -- to limit the power of deductions for folks in the higher tax brackets -- has been done before, by Democrats and Republicans.

So watch Washington if you want, but in the meantime, consider positioning yourself for a new and more expensive tax era.

Here are three moves that make sense right now.

1-Make a long-term charitable commitment.

Do you dole out a certain amount to your favorite organizations every year? And take a tasty tax deduction for that? President Obama's latest proposal would limit the value of tax deductions to 28 percent. That means anyone in the 33 percent or 35 percent bracket would get a smaller writeoff from their gifts.

The most efficient way to frontload those gifts is to participate in a donor-advised fund. That enables you to contribute the money right now and get a full tax deduction in2011, when it might be worth more. But you can defer actually choosing which charity to send the money to until later -- much later.

You can let money sit and grow in a donor-advised fund for years before you actually make those gifts. To participate in one of those funds, you can go through a local community foundation or open an account with an investment company that has a donor-advised fund.

Some to look at are Fidelity Charitable, the Vanguard Charitable Endowment Program, the T. Rowe Price Program for Charitable Giving and Schwab Charitable.

2-It really is time to convert to Roth IRA.

Here's the deal with those Roth individual retirement accounts. Feed them with after-tax money, and allow them to grow as long as possible.

When you withdraw money after you turn 59 1/2, you won't owe any taxes on the withdrawals. If Obama's proposal to let the Bush tax cuts expire for people earning more than $250,000 becomes law, tax rates will rise.

High earners who expect to be in a higher bracket in the future can save significantly by maxing out on the amount of money they put into a Roth. They can even use it as an estate planning tool by saving their Roth accounts for their heirs.

But, there's a snag: You're not allowed to contribute to a Roth if you make too much (defined as $107,000 for a single taxpayer and $169,000 for a couple filing jointly.)

Right now, there's a work around: High earners can't contribute to a Roth, but there's no income limit on who can convert money that's already in a tax-deferred IRA. (There used to be a $100,000 income limit, which could return after 2012.)

So savers who already have money in an IRA or simplified employee pension (SEP) IRA can move that money into a Roth. Some workers with a 401(k) plan may even be able to roll money over from their workplace plan into an IRA, and then convert it to a Roth.

Advisers typically tell people to do this a little bit every year, so as to avoid triggering a top tax bill. Looking forward, it makes sense to convert some money in 2011 and some money in 2012.

And here's a "bonus": With stock prices tanking, assets in those traditional IRAs may be worth less than they used to be. That makes it a good time to convert to Roth.

3-Get a better mortgage, especially on your second home.

There are several reasons why people who own second homes with mortgages on them may choose to refinance now: (1) Mortgage rates are at record lows, according to Bankrate.com; (2) if Congress does limit deductions for high bracket folks that would reduce the value of their mortgage deductions and (3) there's been a fair amount of talk in Washington of eliminating that mortgage write off altogether for second homes.
That means that homeowners who have significant amounts of equity might consider borrowing enough on their primary residence to pay off their second home loan. (That may not even work, if the rules are revised to eliminate the deductibility of interest for cash-out refinancings, which that would effectively be.)

Refinancing when mortgages rates are at their lows could help homeowners who live close to the edge: If you're worried about being able to afford your mortgage without a mortgage interest tax deduction, getting a new, long and cheap loan could help keep your payments low.

read more: Olympus Wealth Management