Financial Planning

Accounting Business Financial Planning Tax

Year End Tax Saving Ideas For Individuals – Deferred Income

There are a number of steps you might take by year-end to cut your 2011 tax bill, such as deferring income, accelerating deductions and capital gains planning.

Deferring Income

  • If you are planning on selling an investment this year on which you have a gain, it may be best to wait until the following tax year to defer payment of the taxes for another year (subject to estimated tax requirements).
  • If you are expecting a bonus at year-end, you may be able to defer receipt of these funds until January. This allows you to defer tax payments (other than the portion normally withheld) until the following year. However, keep in mind that you usually defer taxes on a bonus that is contractually due in 2011.
  • If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients or customers until the end of December.

Caution: Keep an eye on the estimated tax requirements.

Financial Planning Tax

Tax Incentives for Higher Education

The tax code provides a variety of tax incentives for families who are saving for, or already paying, higher education costs or are repaying student loans.

You may be able to claim a credit for the qualified tuition and related expenses of the students in your family who are enrolled in eligible educational institutions. The types of credits available are the Lifetime Learning Credit and the American Opportunity Tax Credit.

Different rules apply to each credit. If you claim an American Opportunity Credit for a particular student, none of that student’s expenses for that year may be applied toward the Lifetime Learning Credit.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

Financial Planning Tax

College Tax Credit – It’s Not Too Late!

It’s not too late to take advantage of the American Opportunity Tax Credit, a credit that helps parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2012. It can be claimed by eligible taxpayers for college expenses paid until 2012.

Here are six important facts about the American Opportunity Tax Credit:

  1. This credit, formerly known as the Hope Credit, has been expanded. Eligible taxpayers can claim qualified tuition and related expenses paid for higher education through 2012. Qualified tuition and related expenses include tuition, related fees, books, and other required course materials.

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  2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

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  3. The full credit is generally available to eligible taxpayers who make less than $80,000, or $160,000 for married couples filing jointly. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

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  4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

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  5. The credit can be claimed for qualified expenses paid during any of the first four years of post-secondary education.

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  6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take either the credit or the deduction.

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If you would like more information about the American Opportunity Tax Credit please call us. We’re more than happy to help.

 

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