HORAN Wealth Management

End of the Year Tax Planning Tips for Your Individual Clients


Dear Friends and Colleagues -


Legislation was passed in December of 2010 to extend the current tax rates until the end of year 2012.  The big unknown is what Congress will decide or not decide to legislate moving forward.  At this point, the "super-committee" has concluded talks without an agreement. No-one can predict the outcome of the debate within the House over the next year. 


What we do know is tax rates are scheduled to increase and various tax benefits are scheduled to sunset by the end of 2012.  In addition, with the passage of the health care bill, a new 3.80% surtax on net investment income and an increase in the Medicare payroll tax of .90% will come into effect for individuals with an adjusted gross income above $200,000 and couples over $250,000.   


If Congress remains in dead-lock without making decisions, the following increases in
the tax rate will occur in 2013:






Ordinary Income



Long Term Capital Gains



Qualified Dividends



Estate and Gift Tax





Below are tax-planning strategies to ease the risk for higher tax bracket clients for 2011:


Capital Gain and Loss Harvesting 

  • If your clients have losses in their investments, consider tax loss harvesting strategies before year-end to offset current year gains or to accumulate losses to offset future gains that may be taxed at a higher rate.  Remember to be careful with wash sale rules by purchasing the same security within 30 days after you sell the original shares.



  • Consider bundling medical expenses into tax years when they'll exceed 7.50% of adjusted gross income.
  • Decide whether to pay 4th quarter estimated State taxes in December of 2011 or January 2012.


College Education Tax Incentives

  • If college funds are currently maintained in taxable accounts, it may make sense to shift these funds to a Section 529 account to reduce future taxable income.  Investment appreciation and income on the investments are tax-free for qualified distributions.
  • If your client's 2011 adjusted gross income (AGI) allows them to qualify for the American Opportunity College Credit (maximum credit of $2,500) or the Lifetime Learning Higher Education Credit (maximum credit of $2,000), consider prepaying college tuition bills that are not due until early 2012 if that would result in a larger credit on this year's Form 1040.  They can claim a 2011 credit based on prepaying tuition for academic periods that begin in January through March of next year.


Charitable Giving

  • Consider giving appreciated property to a charity instead of cash.  Your client will get a deduction for the fair market value, and you'll avoid paying tax on the capital gain.
  • If your client is age 70 or older, you can donate your 2011 required minimum IRA distribution, up to $100,000, tax-free.  You must make the donation directly from the IRA. 


Investment Management

  • Re-evaluate tax-exempt yields versus taxable yields in light of current market conditions. 
  • Optimize net capital gains and take advantage of any inherit capital losses that may be in your client's account (tax loss harvesting). 
  • Position higher yielding investments in tax-sheltered accounts and lower income investments in taxable accounts.  
  • If your client owns appreciated mutual fund shares held over 12 months and is contemplating selling out towards year end, sell before the December dividend.  This way, your entire gain including the amount attributable to the upcoming dividend will qualify for the 15% rate. If you wait, part of your dividend will almost certainly consist of ordinary income.


If you have any questions regarding these tax tips or would like to discuss a specific client need, please feel free to contact Michael Napier, Director of Financial Planning, at michaeln@horansecur.com or by phone at 513-745-0707. 


Terence L. Horan, CLU, ChFC 




Gregory L. Hoernschemeyer, CLU




Michael D. Napier, CFP 



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This information has been taken from sources we believe to be reliable but there is no guarantee as to its accuracy. This material is not intended to present an opinion on legal or tax matters.