Tax

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Make Charitable Contributions

Make Charitable Contributions

You can donate property as well as money to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses however.

Keep in mind that a written record of charitable contribution is required in order to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Residential Energy Tax Credits

Residential Energy Tax Credits

If you haven’t taken advantage of energy tax credits for your home, 2011 is your last chance. The credits–10% of cost up to $500 or a specific amount from $50 – $300–expire on December 31, 2011 and only apply to improvements in an existing home that is your principal residence. New construction and rentals do not qualify.

The tax credits are as follows:

  • Energy Star window tax credit: up to $200 maximum
  • Water heater tax credit (includes electric, natural gas, propane, or oil): up to $300 maximum
  • Air conditioner tax credit: up to $300 maximum
  • Insulation, doors, and roof credits: up to the $500 cap
  • Furnace tax credit (includes natural gas, propane, oil, or hot water): $150 maximum. Efficiency must be 95% (up from 90% before the extension)

Caution: Taxpayer is ineligible for this tax credit if this credit has already been claimed by the taxpayer in an amount of $500 in any previous year.

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Accelerating Deductions

Accelerating Deductions

  • Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Pay your entire property tax bill, including installments due in year 2012, by year-end. This does not apply to mortgage escrow accounts.
  • Try to bunch “threshold” expenses, such as medical expenses and miscellaneous itemized deductions. Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: In most cases, credit cards charges are considered paid in the year of the charge regardless of when you pay on the card. This, however, does not apply to store revolving credit cards, so if you charge expenses on a Wal-Mart store credit card, the deduction can not be claimed until the bill is paid.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2011. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2012 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2011 if you think your marginal tax rate will be much lower this year than it will be next year.

Tip: If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

If you have any questions about estimated taxes, please call us.

Caution: Alternative Minimum Tax (AMT) no longer just impacts the wealthy! Do not overlook the effect of any year-end planning moves on the AMT for 2011.

Due to tax changes in recent years, AMT impacts many more taxpayers than ever before because the tax is not indexed to inflation. As a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions.

Note: AMT Exemption Amounts For 2011

  • $48,450 for single and head of household fliers;
  • $74,450 for married people filing jointly and for qualifying widows or widowers, and
  • $37,225 for married people filing separately.

Please call us if you’d like more information or if you’re not sure whether AMT applies to you. We’re happy to assist you.

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