2011 Tax Planning Tips
- If you expect your tax rate will be higher in 2012, you may benefit from accelerating income into 2011 and deferring deductions into 2012.
- If you think your tax rate will be lower next year, consider deferring income to 2012 and accelerating deductions into 2011.
- If you could qualify for the standard deduction in either 2011 or 2012, consider shifting qualified expenditures (i.e. real estate taxes or charitable contributions) into the year you expect to itemize your deductions—generally, taking the standard deduction in one year and doubling up on itemized deductions in the other year results in greater tax savings.
Shifting income from one year to another
Salaries, bonuses, etc.– If your employer is willing compensation earned in 2011 can sometimes be paid to you in early 2012.
Capital gains and losses– Sales at a loss can reduce other capital gains, and excess capital losses can be deducted to offset up to $3,000 of other income. Before you recognize a gain, check your holding period. Long-term capital gains (held longer than one year) are eligible for a significantly lower tax rate. Short term capital gains (held shorter than one year) are taxed as high as 35 percent.
Credit card payments – Paying tax deductible expenditures with a credit card secures the deduction, even if you do no actually pay the credit card company until the following year.
Other year-end strategies
Appreciated assets to charities – Consider giving appreciated assets to charities. You can deduct the fair market value of the property and you avoid taxes on the appreciation of the asset.
Tax credits for home improvements– A tax credit for a qualifying home improvement may be available for improvements placed in service in 2011, but not in 2012. The new energy efficiency tax credit is a 10 percent credit, up to a lifetime maximum of $500. The prior cap had been $1,500, so check to see whether you have claimed this credit in prior years.
Tax credits for alternative vehicles – Several tax credits are available for purchasers of various types of motor vehicles that use fuel-saving or alternative-fuel technologies. Check with the manufacturer to see what credits may be available for you.
2011 Retirement Plan Limits
401(k) Plans: $16,500 ($22,000 for ages 50 or older)
IRA Contribution: $5,000 ($6,000 for ages 50 or older)
Simple IRA: $11,500 ($14,000 for ages 50 or older)
SEP IRA: 20 percent of their self employment income up to $49,000