Don't forget these important year end tax planning ideas:
Defer Income
- If you are self employed, defer sending invoices to clients until the end of December
- Defer income to the next year if you anticipate being in a lower tax bracket for 2012
Accelerating Deductions
- Consider paying state estimated taxes in December instead of January
- Try
to bunch expenses subject to threshold limitations (like medical
expenses) in one year. By bunching the expenses you have better chance
of exceeding the adjusted gross income limitation
Residential Energy Tax Credit
This credit is scheduled
to expire at the end of 2011. If you haven't taken advantage of this
credit, this is your last chance. The credits are as follows
- Energy start windows - $200 max
- Water heater - $300 max
- Air conditioner - $300 max
- Insulation, doors and roof - $500 max
- Furnace - $150 max
Charitable Contributions
- Consider making donations of appreciated property in order to avoid paying tax on capital gains
- Deductions can be taken for out-of-pocket expenses and mileage incurred on behalf of a charitable organization
Capital Gains and Losses
- If you have large capital gains, consider selling investments in
a loss position to offset capital gains. You can claim a deduction for
up to $3,000 in capital losses
- Defer purchasing mutual funds until January 2012 to avoid taxes on fund distributions
Retirement Plan Contributions
- Contribute to your employer's 401k plan. Maximum contribution
for 2011 is $16,500 plus an additional catch up of $5,500 if over 50
- Contributions to a traditional IRA can be deducted. The maximum contribution is $5,000 ($1,000 catch up if over 50)
- If
your dependent child has earned income, set up and IRA to help reduce
taxable income. Maximum contribution is $5,000 or earned income,
whichever is less
- Rollover your traditional IRA to a Roth IRA
Kiddie Tax
Be aware of this tax
which required a portion of your dependent child's unearned income to be
taxed at your marginal tax rate. Kiddie tax rules now apply to full
time students up to age 24 to do not provide more than 50% of their own
support.