Year End Tax Planning Time!

As the end of 2011 approaches, it is a good time to start year-end tax planning to minimize your individual and business taxes.

Here is a list of Year – end strategies for individuals:

  1. Realize losses on stock while substantially preserving your investment position. For example, you can sell the original holding at a loss, then buy back the same securities at least 31 days later.
  2. Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2011 that are phased out over varying levels of adjusted gross income. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year. However, in some cases, it may pay to actually accelerate income into 2011 if a person’s marginal tax rate is much lower this year than it will be next year.  Bush tax cuts apply through 2012. If Congress does not act rates will go up in 2013.
  3. Consider using a credit card to prepay expenses that can generate deduction for this year.
  4. Estimate the effect of any year-end planning moves on the AMT for 2011 keeping in mind that many tax deductions allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction of property taxes, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. As a result, in some cases if you pay Alternative Minimum Tax, these deductions should not be accelerated.
  5. If you believe a Roth IRA is better than a traditional IRA, and wish to remain in the market for the long term, consider converting all or part of your traditional IRA to a Roth IRA. Keep in mind, however, that such a conversion will increase your taxable income for 2011. If you are expecting a business loss in 2011 that could offset the income realized on the Roth conversion, your tax consequences may be minimal.
  6. If you are a homeowner, make energy saving improvements to the residence. You may qualify for a tax credit.
  7. If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by your IRA trustee.  This is more tax efficient than taking the IRA distribution in cash then making a cash contribution.
  8. Purchase qualified small business stock (QSBS) before end of this year. There is no tax on gain from the sale of such stock if it is purchased after September 27, 2010 and before January 1, 2012, and held for more than five years.

Although I have covered a number of topics in this blog, I did not address every issue.  We recommend that you always, see a professional when considering tax planning strategies for your personal situation.  There are very important details underlying each of these strategies which must be thoroughly understood before you employ them!

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