Q: As the year-end approaches, what tax-saving strategies should I be considering?

A:  Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact measures that could have a major impact in 2012 and beyond.  Next year, Congress must address a host of thorny issues, such as whether to once again “patch” the alternative minimum tax, what to do about the post-2012 expiration of the Bush-era tax cuts and the expiration of favorable estate and gift rules for estates of decedents dying and gifts made after 2012.

Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress.

Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later.

  • Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill.

  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks into a Roth IRA.  Keep in mind, however, that such a conversion will increase your adjusted gross income for 2011.

  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the conversion. You can later reconvert to a Roth IRA.

  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan if you have reached age 70-1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.

  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $13,000 in 2011 to each of an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.

Year-End Tax-Planning Moves for Businesses

  • Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2011, the expensing limit is $500,000, including a limited amount of expensing available for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2012, the dollar limit will drop to $139,000 and expensing won't be available for qualified real property.

  • Businesses also should consider making expenditures that qualify for 100% bonus first year depreciation if bought and placed in service this year. This 100% first-year writeoff generally won't be available next year unless Congress acts to extend it.

Consult a CPA
As you review your current tax situation, remember that your local CPA can help.  He or she can offer the advice and information you need to make smart, tax-saving decisions.  You may contact me at (409) 892-0233 or (409) 883-5306.  My email address is brad@ekc-cpa.com. 



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