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In This Issue
Year End Ideas for the Office
Estate Planning
Tax Breaks
Health Insurance Tax Credit
Evaluate Inventory
Employ Your Child
Charitable Gifts of Stock
Maximize Standard Deductions
Bunch Deductions
Year End Securities
Ideas for Seniors
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Year End Ideas for the Office
Maximize Contributions to your Company Sponsored Retirement Plan. Contribute as much as you can, especially if your employer makes matching contributions, otherwise you'll be giving up "free money" if you fail to participate in the plan.
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Take Advantage of Flexible Spending Accounts (FSAs). If your company has a healthcare and/or dependent care FSA, before year-end you must specify how much of your 2012 salary to convert into tax-free contributions to the plan. You can then take tax-free withdrawals next year to reimburse yourself for out-of-pocket medical and dental expenses, as well as for qualifying dependent care costs.
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Adjust Your Federal Income Tax Withholding. If it looks like you are going to owe income taxes for 2011, consider bumping up the Federal income taxes withheld from your paychecks now through the end of the year.

[read more]

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Don't Overlook Estate Planning
For 2011 and 2012, the unified federal gift and estate tax exemption is a relatively generous $5 million. However, the exemption will drop back to only $1 million in 2013 unless Congress takes action. In addition, the maximum federal estate tax rate for 2011 and 2012 is 35%. For 2013 and beyond, it is scheduled to rise from the current 35% to a painfully high 55%.

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 YearEnd Tax Planning | Dec 2011


To Our Clients and Friends -  


As we approach year end, it's again time to focus on last-minute tax planning changes that you might want to consider to benefit you in 2011, and in future years. Before we get to specific suggestions, here are two important considerations to keep in mind. 


First, remember that effective tax planning requires a multiyear outlook, because you can't be sure maneuvers intended to save taxes on your 2011 return won't backfire and cost additional money in the future. For example, postponing a stock sale gain until next year would reduce your 2011 adjusted gross income, but increase your 2012 figure. Higher income next year could make you ineligible for the child tax credit; reduce or eliminate the credits or deduction for college expenses; limit deductible losses from your rental real estate investments; and so on. 


Second, be on the alert for the Alternative Minimum Tax (AMT) this year. It's an add-on tax, over and above your "regular" tax. Although you may have never owed AMT in the past, your odds of being affected are higher now. Why? Because the tax brackets, standard deduction, and personal exemption allowances used in calculating your regular tax liability are all indexed annually for inflation, whereas most AMT parameters are not. The odds of owing the tax go up every year due to this factor alone. The risk goes up another notch or two if you deduct a significant amount of state and local taxes or miscellaneous itemized deductions (like unreimbursed employee business expenses), or claim multiple dependents. These deduction types are not allowed against the AMT. 


Here are a few tax-saving ideas to get you started. As always, you can call on us to help you sort through the options, and implement the strategies that make sense for you. 


Ideas for Your Business

Take Advantage of Tax Breaks for Purchasing Equipment, Software, and Certain Property.

If you have plans to buy a business computer, office furniture, equipment, vehicle, or other tangible business property, or to make certain improvements to real property, you might consider doing so before year-end to capitalize on generous, but temporary tax breaks:

  • Larger Section 179 Deduction
  • Section 179 Deduction for Real Estate
  • 100% First-year Bonus Depreciation

[read more]

Claim the Health Insurance Tax Credit for Small Employers

Qualifying small employers can claim a tax credit that can potentially cover up to 35% of the cost of providing health insurance coverage to employees. 

[read more]

Evaluate Inventory for Damaged or Obsolete Items. 

Inventory is normally valued for tax purposes at cost or the lower of cost or market value. Regardless of which of these methods is used, the end-of-the-year inventory should be reviewed to detect obsolete or damaged items. 

[read more]
Employ Your Child

If you are self-employed, don't miss one last opportunity to employ your child before the end of the year. There can be payroll tax savings and the added benefit of providing them with earned income, which enables them to contribute to an IRA.

[read more] 


Ideas for Maximizing
Non-business Deductions 
Make Charitable Gifts of Appreciated Stock
If you have appreciated stock that you've held more than a year and you plan to make significant charitable contributions before year-end, keep your cash and donate the stock (or mutual fund shares) instead. You'll avoid paying tax on the appreciation, but will still be able to deduct the donated property's full value. 

[read more] 

Maximize the Benefit of the Standard Deduction
For 2011, the standard deduction is $11,600 for married taxpayers filing joint returns. For single taxpayers, the amount is $5,800. Currently, it looks like these amounts will be about the same for 2012. If your total itemized deductions are normally close to these amounts, you may be able to leverage the benefit of your deductions by bunching deductions in every other year.   

[read more] 

Bunch Deductions Subject to an Adjusted Gross Income Limit
Miscellaneous itemized deductions (such as unreimbursed employee business expenses) are deductible to the extent they exceed 2% of your adjusted gross income (AGI).  

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Making the Most of Year-End Securities Transactions

For 2011 sales, you'll generally owe only 15% on gains from investment assets held over one year (0% if the gains would otherwise fall into the 15% regular income tax bracket). Gains from investments held one year or less are taxed at your ordinary rates. So, the framework for year-end tax selling of investment securities is fairly simple.

  • Inventory your stocks, mutual fund shares, and bonds that you feel you could easily live without. Between now and year-end, you can sell enough losers to offset any capital gains recognized earlier this year. 
  • Secure a Deduction for Nearly Worthless Securities. If the dismal economy has left you with securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year. 
  • Employer Stock Options. If you own appreciated stock acquired by exercising Incentive Stock Options (ISOs) and are now considering selling as part of your overall year-end strategy, remember what it takes to qualify for the 15% rate. 

Ideas for Seniors Age 70 Plus

Make Charitable Donations from Your IRA

IRA owners and beneficiaries who have reached age 70 are permitted to make cash donations totaling up to $100,000 to IRS-approved public charities, directly out of their IRAs.


Take Your Required Retirement Distributions

The tax laws generally require individuals with retirement accounts to take withdrawals based on the size of their account and their age every year after they reach age 70. Or you could be subject to a penalty of 50% of the amount not withdrawn.

As we said at the beginning, this letter is intended to give you just a few ideas to get you thinking about tax planning for the rest of this year. Please don't hesitate to contact us if you want more details, or would like to schedule a tax planning strategy session. We can also meet with you to project your 2011 income tax liability, in order to determine whether or not your federal income tax withholding, or estimated income tax payments are adequate, if this is a particular concern of yours.

Very truly yours,
Wittenberg CPA, PS
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