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YEAR END TAX PLANNING TIPS FOR BUSINESSES AND INDIVIDUALS
The following information is not intended to be tax advice to individuals or business entities. The information presented is of a general nature and is not specific to any individual or business transaction. A tax advisor should be engaged to review any tax planning action and/or tax compliance action taken by an individual or business entity.
INDIVIDUAL TAX TIPS FOR TAX YEAR 2011:
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MOVES TO THE SAN FRANCISCO BAY AREA--Moving costs are still deductible-employees and self-employed individuals may deduct as an adjustment to gross income the reasonable expenses of moving themselves and their families if the move is related to starting work in a new location. Deductible moving expenses are limited to the cost of transportation of household goods and personal effects and travel (including lodging but not meals) to the new residence. Additionally, for tax preparation purposes, be sure to retain all of the real estate purchase and sale documents to properly account for all income tax elements of the transactions.
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INDIVIDUAL TAXPAYER YEAR END TAX PLANNING MOVES
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Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year. Don't forger that you can no longer set aside amounts to get tax free reimbursements for over-the-counter drugs, such as aspirin and antacids.
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If you become eligible to make health savings account (HAS) contributions in December of this year, you can make a full year's worth of deductible HAS contributions for 2011.
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Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, and then buy back the same securities at least 31 days later. It may be advisable for you to meet your tax advisor to discuss year end trades you should consider making.
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Postpone income until 2012 and accelerate deduction into 2010 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 (AGI). These include child tax credits, higher education tax credits, the above-the-line deduction for higher education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, that in some cases, it may pay to accelerate income into 2011. For example, this may be the case where a person's marginal tax rate is much lower this year than it will be next year.
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If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in lower valued stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind that such a conversion will increase your adjusted gross income for 2011.
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It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2012.
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If you expect to owe state and federal taxes when you file your return next year, consider asking your employer to increase your withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2011 if this action will not create an alternative minimum tax (AMT position).
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Alternative Minimum Tax-estimate the effect of year-end-planning moves on the alternative minimum tax (AMT) for 2011, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. Contact your tax advisor for additional information.
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Accelerate big ticket purchases into 2011 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless congress acts, this election won't be available after 2011.
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You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
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You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
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Charitable gift donations for the age 70 1/2 or older-if you are 70 1/2 or older and own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.
BUSINESSES AND BUSINESS OWNERS-YEAR END TAX PLANNING MOVES
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Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2011, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for the tax years beginning in 2012, the dollar limit will drop to $139,000, the beginning of-phaseout amount will drop to $560,000, and expensing will not be available for qualified real property. The dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most of their outlays for machinery and equipment. Furthermore, the expensing deduction is not prorated for the time that the asset is in service during the year.
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Businesses should consider making expenditures that qualify for 100% bonus first year depreciation if bought and placed in service this year. This 100% first-year write-off generally will not be available next year unless Congress acts to extend it. Therefore, businesses planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.
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If you are self employed and have not done so this year, set up a self-employed retirement plan.
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Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2012, and disposing of a passive activity to allow you to deduct suspended losses.
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