Nov. 5 (Bloomberg) -- The U.S. government is spending $787 billion to stimulate the economy, the deficit is $1.4 trillion and Congress is debating costly changes to health care. The taxpayers’ bill to pay for it isn’t far behind.

“Something is going to have to be done to raise revenue unless entitlement spending is cut,” said Gerald Prante, senior economist for the Washington-based Tax Foundation.

Federal tax rates may rise in 2011 to as high as 39.6 percent, up from 35 percent, for those earning more than $373,650. The House version of the health reform bill sets an additional 5.4 percent surtax on adjusted gross income for high- income individuals. Long-term capital gains rates may reach 28 percent, from 15 percent today, Prante said.

Tax advisers taking advantage of lower rates and expiring tax breaks on 2009 and 2010 returns could save millions for clients in the top brackets, said Mark Nash, a Dallas partner at New York-based PricewaterhouseCoopers Private Company Services. Strategies range from investing in film production to exercising stock options.

“For many of our clients, particularly those who run their own businesses, there may be an opportunity to accelerate significant amounts of income -- even as much as $50 million to $100 million of taxable income,” said Nash, whose average client has assets of $150 million or more. The tax savings from moving income into 2009 or 2010 would be 4.6 percent of that amount, he said.

Defer Expenses

Executives may have to decide before the end of this year whether to defer their 2010 bonus until 2011, Nash said. And those who aren’t permitted to postpone taking a bonus for many years should take it in 2010 when rates may be lower, he said.

“We’re trying to have clients bring income into this year and likewise defer expenses into future years when you may have higher rates,” said Robert Healy, chief executive officer of R.J. Healy & Co., an advisory firm based in Walnut Creek, California. Consider holding on to as many capital losses as possible, Healy said, because they may be more valuable for offsetting capital gains if tax rates increase.

Long-term capital gains on assets held more than one year are generally taxed at rates no higher than 15 percent, according to the Internal Revenue Service. That will go up to 20 percent in 2011 if Congress does nothing. Short-term gains are taxed as ordinary income. Taxpayers can deduct up to $3,000 annually of capital losses that exceed capital gains to reduce ordinary income, according to the IRS, and they can carry forward an unlimited amount of excess losses to offset gains in following years.

Talk of the Town

“The talk around town is to 25 or 28 percent,” said Dan Yu, a director at Eisner LLP, a New York-based accounting and advisory firm, of the potential capital gains tax increases. “If it doesn’t happen in 2010, I’m pretty sure it will happen in 2011.”

Exercising and selling “non-qualified” stock options may be another way to capitalize on lower rates, said Tom Karsten, senior managing partner at Karsten Tax and Financial Management based in Fort Worth, Texas.

“We’ve been encouraging our clients to take some of those profits now,” said Karsten, whose clients have an average $1 million in investable assets.

The spread between the option’s strike price and its market value when exercised is considered compensation and taxed as ordinary income, said PricewaterhouseCoopers’ Nash.

AMT Effect

“If you think your stock is not going to be a rapid appreciator or if you intend to exercise the option and hold the shares it would be a good time to do it now,” Nash said. “Particularly if the stock option is expiring in the next couple of years.”

Taxpayers affected by the alternative minimum tax should calculate how much income they can move into 2009 or 2010 before reaching a higher tax bracket of 33 percent or 35 percent, Nash said.

The AMT is a parallel system to the standard tax rates that generally applies to families earning between $150,000 and $500,000. Medical expenses, personal exemptions, and state and local taxes aren’t deductible in the AMT equation. Taxpayers calculate their liability and pay whichever is higher -- the AMT or the ordinary rate.

Those in high-tax states such as California and New York are more likely to pay the AMT, said Joseph Kovar, a certified public accountant at Sweeney Kovar LLP based in Danville, California. About 4 million to 5 million Americans are subject to the AMT, according to the Tax Foundation.

Energy Credits

The IRS offers two energy tax credits to lower taxes. Homeowners may be able to claim a 30 percent credit on the cost of energy-efficient improvements such as windows, doors, air conditioners and water heaters up to $1,500 in 2009 and 2010 combined. There’s no dollar limit on qualified geothermal heat pumps, solar energy and wind systems installations. The credits are also available next year.

“Look for the tax-credit certification statement on the manufacturer’s Web site or in the packaging materials,” said IRS spokesman Eric Smith. “There’s a lot of energy-efficient things around but they may or may not qualify.”

Taxpayers with a taste for Hollywood can reduce passive income by investing in a movie, said Mark Hutchison, a tax principal at Rothstein Kass, who specializes in film finance.

An investor in a motion picture or television show may deduct production costs in a given year up to the amount invested. The deduction can be used to offset passive income, such as rents, according to the IRS. A taxpayer with multiple properties generating rental income may want to look at the tax break, said Hutchison. Production on the film must have started before Dec. 31, Hutchison said, in order to benefit.

“You get to be in the sexy business of Hollywood, but remember if it goes bust you could be on the hook,” Hutchison said.

New Car Purchases

Seventy-five percent of a movie’s labor costs must be spent in the U.S. to be eligible, according to the IRS, and the deduction is generally capped at $15 million among all owners of the film. If principal photography commences before the deduction’s scheduled expiration this year, expenses may still be applied after the expiration date, the IRS said.

Consumers who missed out on the “Cash for Clunkers” program can still get a break if they buy a new car, said Kenneth Powell, a partner at the New York-based Berdon LLP an advisory and accounting firm. Sales taxes paid on a car, light truck, motor home or motorcycle purchased after Feb. 16 and before Jan. 1, 2010, are deductible up to $49,500 of the sales price per vehicle, according to the IRS.

In New York City, where the sales tax rate is 8.875 percent, that’s equal to about $4,313, for a Mercedes-Benz E- class 2010 sedan with a starting list price of $48,600, according to the company’s Web site.

The tax break phases out for single filers with adjusted gross income between $125,000 and $135,000 and between $250,000 to $260,000 for joint filers. There’s no limit on the number of vehicles, said IRS spokesman Eric Smith.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net.

Last Updated: November 5, 2009 15:28 EST