Tax

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Accelerating Deductions

Accelerating Deductions

  • Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Pay your entire property tax bill, including installments due in year 2012, by year-end. This does not apply to mortgage escrow accounts.
  • Try to bunch “threshold” expenses, such as medical expenses and miscellaneous itemized deductions. Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: In most cases, credit cards charges are considered paid in the year of the charge regardless of when you pay on the card. This, however, does not apply to store revolving credit cards, so if you charge expenses on a Wal-Mart store credit card, the deduction can not be claimed until the bill is paid.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2011. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2012 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2011 if you think your marginal tax rate will be much lower this year than it will be next year.

Tip: If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

If you have any questions about estimated taxes, please call us.

Caution: Alternative Minimum Tax (AMT) no longer just impacts the wealthy! Do not overlook the effect of any year-end planning moves on the AMT for 2011.

Due to tax changes in recent years, AMT impacts many more taxpayers than ever before because the tax is not indexed to inflation. As a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions.

Note: AMT Exemption Amounts For 2011

  • $48,450 for single and head of household fliers;
  • $74,450 for married people filing jointly and for qualifying widows or widowers, and
  • $37,225 for married people filing separately.

Please call us if you’d like more information or if you’re not sure whether AMT applies to you. We’re happy to assist you.

Accounting Business Financial Planning Tax

Year End Tax Saving Ideas For Individuals – Deferred Income

There are a number of steps you might take by year-end to cut your 2011 tax bill, such as deferring income, accelerating deductions and capital gains planning.

Deferring Income

  • If you are planning on selling an investment this year on which you have a gain, it may be best to wait until the following tax year to defer payment of the taxes for another year (subject to estimated tax requirements).
  • If you are expecting a bonus at year-end, you may be able to defer receipt of these funds until January. This allows you to defer tax payments (other than the portion normally withheld) until the following year. However, keep in mind that you usually defer taxes on a bonus that is contractually due in 2011.
  • If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients or customers until the end of December.

Caution: Keep an eye on the estimated tax requirements.

Financial Planning Tax

Tax Incentives for Higher Education

The tax code provides a variety of tax incentives for families who are saving for, or already paying, higher education costs or are repaying student loans.

You may be able to claim a credit for the qualified tuition and related expenses of the students in your family who are enrolled in eligible educational institutions. The types of credits available are the Lifetime Learning Credit and the American Opportunity Tax Credit.

Different rules apply to each credit. If you claim an American Opportunity Credit for a particular student, none of that student’s expenses for that year may be applied toward the Lifetime Learning Credit.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

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