As a banker, I would like to think that our clients meet with their CPAs each fall and plan for the upcoming tax year. However, I know that is often not the case and many people realize when tax time comes, they have not adequately prepared.

Given the current political climate and uncertainty around tax law changes, sitting back and waiting to see if Congress extends certain laws is hardly a tactic anyone can criticize. Still, even with all of the uncertainty, the best way to prepare for the unknown is to plan for it.

FROM 2009 TO 2010

Many of the tax law changes from 2009 carried over to 2010, including:

The Making Work Pay Credit, which could result in an extra $400 for individuals and $800 for married couples.

The Modified Hope Credit, renamed the American Opportunity Credit, which provides up to $2,500 for the first four years of postsecondary education – an increase of two years and $700 over the original Hope Credit.

Maximum contribution limits for retirement, including an IRA contribution limit of $5,000 (with an extra $1,000 “catch-up” for those over the age of 50), as well as the 401(k) deferral contribution limit of $16,500 (with an extra $5,500 “catch-up” deferral contribution for those over the age of 50).

The standard deduction amounts will remain the same (except head of household, which will increase by $50).

Personal exemption amounts will remain the same, as will the “kiddie” deduction, the gift tax exclusion and tax rates.

THE FUTURE OF THE ESTATE TAX

Most of this is good news for taxpayers. The bad news is that some of the nice American Recovery and Reinvestment Act tax relief provisions we were excited about last year expired, including:

The increased Alternative Minimum Tax exemption.

The new vehicle purchase incentive.

The educator’s deduction.

The ability to take the sales tax deduction versus state and local income tax option.

Concerning reform of the estate tax, don’t hold your breath. Really, don’t hold your breath.

There has been talk that a law could be passed and made retroactive. If Congress does nothing, the 2011 estate tax will return to 55 percent and include a $1 million exemption.

There are currently four estate tax reform bills that range from a $1 million to $5 million exemption and a 20 percent to 55 percent tax rate.

2011 AND BEYOND

Next year brings with it more than the return of the estate tax. The child tax credit will be cut in half to $500 per child, and we will see the following changes if the 2001 and 2003 Bush tax cuts expire:

The top two individual income tax rates will rise to 2001 levels – from 33 and 35 percent to 36 and 39.6 percent.

The long-term capital gains rate will increase to 20 percent, and the dividends tax rate maximum will rise from 15 percent to ordinary income tax rates.

Also, using your health savings account or flexible spending account to purchase over-the-counter medicines is scheduled to go away. Nonmedical HSA withdrawals are currently assessed a 10 percent penalty. In 2011, this will increase to 20 percent.

Looking even further ahead, 2013 features a 3.8 percent Medicare surtax, which will be applied to either the modified adjusted gross income over a threshold amount or the net investment income, whichever is smaller. The threshold amounts are $250,000 for married filing jointly and $200,000 for individuals.

So, if you’ve considered converting to a Roth IRA and are on the fence, this may entice you. If you convert $100,000 in 2010, you can include $50,000 on your 2011 tax return and $50,000 on your 2012 tax return in order to split paying the taxes.

If you convert after 2012, that income will be included all in one year and will be included in your modified adjusted gross income. Also, distributions from a Roth IRA are discretionary and are not included in your adjusted gross income.

PLAN TODAY, ADAPT TOMORROW

According to President Obama’s fiscal year 2011 budget proposal, he would like to make permanent certain tax cuts that were enacted in 2001 and 2003, such as:

Extending the capital gains and dividends rates for taxpayers whose tax bracket is less than 36 percent.

Extending the $1,000 child tax credit.

Extending education incentives.

Extending Alternative Minimum Tax rules.

To review the 2011 federal budget proposal, visit www.jct.gov.

However, don’t wait for 2011 to plan. It is better to update your plan based on a change than it is to wait until it is too late. And your advisers, including your financial planner, estate planning attorney and accountant, will be able to make the best estimates for your unique situation.