Lower Your Tax Bill: Last Minute Year End Planning to Consider
By Patricia Aas, Senior Manager, Tax & Business
As 2011 will quickly come to an end, taxpayers should be thinking about some last minute tax planning strategies to help lessen the current year tax burden. There are three basic year-end planning techniques many individuals can utilize to manage the upcoming 2011 tax liabilities:
- Deferring income to 2012,
- Accelerating deductions into 2011 and
- Taking advantage of expiring provisions.
As long as you’ll be in the same or lower tax bracket in 2012, deferring taxes until next year is generally beneficial. Some common methods that can be used to defer income to the next year include:
- Hold off selling stocks or other investments that will yield gains,
- Arrange year-end bonus deferral with your employer to January,
- Hold off on taking retirement plan distributions until next year.
Alternatively, there are several techniques which can be incorporated to accelerate deductions to the current year such as:
- Increase 401k plan or IRA contributions,
- Sell stocks or other investments that will yield losses,
- Pay deductible expenses such as charity donations, real estate taxes, state & local taxes and mortgage interest in 2011 instead of 2012,
- Prepay college tuition.
After considering some of the above concepts, there are certain tax law provisions that are schedule to expire as of 2011. Taking advantage and being aware of some of the notable tax provisions set to expire can help alleviate the tax burden:
- Deductibility of mortgage insurance premiums,
- Classroom expense deductions of up to $250 for teachers,
- Higher education expenses deductions and credits for those within eligible income limits,
- Energy saving improvements to residences can yield income tax credits.
Certain prepayments of itemized deductions may subject individual tax payers to the dreaded alternative minimum tax (AMT) for 2011. Before any deductions are planned, we suggest that these alternatives be discussed with your Marcum Tax Professional as many of the above mentioned tax opportunities may not exist for AMT taxpayers. Therefore, proper planning is critical to managing the tax burden.
Although time is running out, it’s not too late to review the 2011 tax situation and determine what actions can still be taken by year end. Actions taken by the end of the year may significantly lower your tax bill for 2011.