Year end tax planning moves
With the uncertainty of future tax rates year end planning is a bigger challenge this year than in past years. We have compiled a list of actions that may help you to save tax dollars.

1. Accelerate/delay income and accelerate/delay deductions. Whether to accelerate or delay depends on what tax bracket you are in in 2011 and what tax bracket you expect to be in next year.  This could include accelerating/delaying payment of property taxes, mortgage payments, state income taxes, donations and business expenses.

If you are in a higher tax bracket in 2011 than you expect to be in 2012, you would attempt to accelerate deductions and delay the receipt of taxable income. However, beware of the alternative minimum tax. ("AMT"). Property taxes and state income taxes are not deductible for purposes of computing AMT. So, if you are in AMT, paying such taxes will not lower your Federal tax bill.

2. Recognize losses/ long term gains on stock or other capital assets. Recognizing losses may be advantageous if you have already recognized short term capital gains (gains on assets held less than 1 year) in 2011. Short term capital gains are added to your income and taxed at your marginal rate. However, if you have long term capital gains, you may want to pay tax at the 2011 Federal long term capital rate which is usually 15%. Long term capital gains are taxed at 0% to the extent the gain would otherwise be taxed at a rate below 25% if it were ordinary income. 

If you recognize short term losses on stocks, they will first be used against short term capital gains and then long term capital gains. If you recognize long term capital losses, they are first used against long term capital gains. So, it important to ensure having good records of whether existing gains are short term or long term so that recognizing losses achieves the intended result.

3. "Bunch" certain kinds of deductions. If you already have substantial medical expenses or misc. deductions such as unreimbursed employee business expenses, you may want to pay additional costs this year instead of waiting until 2012. Such expenses are only deductible when they exceed certain threshold amounts.  So, if you have already exceeded the thresholds, paying additional amounts may provide tax benefits.

4. Donate to charity.  Cash donations are limited to 50% of your adjusted gross income and you can deduct contributions even if you charge on credit cards and pay them off later. Donate household goods. As long as they are good condition you are entitled to a deduction for their value. Donations of appreciated stock are deductible at the value of the stock when donated. There is no tax on the appreciation. However, the donations are limited to 30 % of adjusted gross income. 

5. There are certain kinds of retirement plans that must be established by year end in order to qualify for 2011 tax deductions. If you think you will want to contribute to a retirement plan, you should determine which type of plan is suitable for you and whether the kind of plan you decide on must be established by December 31, 2011. Most plans allow contributions made after year end and before certain dates in 2012 to be deducted in 2011. However, certain kinds of plans must be set up though not funded by the end of the year.

6. Make energy savings improvements to your main home, such as putting in extra insulation or installing energy saving windows or buying and installing an energy efficient furnace, and qualify for a tax credit. Unless Congress acts, this tax break will not be available after this year. Additionally, credits are available for installing energy generating equipment such as solar electric panels or solar hot water heaters to your home. Such credits will be available through 2016 under current law.

7. Make annual gifts to save possible future estate tax (if reinstated). You can give $13,000 in 2011 to an unlimited number of individuals free of gift tax. Gifts to family members may save taxes where income earning property is transferred and the family members are in lower income tax brackets and not subject to "kiddie tax" (tax on investment income over $1,900 of a child under the age of 18).
 

8. Fund a health savings account ("HSA") if you have health insurance that qualifies you to have an HSA. The allowable contribution depends on your age and whether the insurance covers an individual or the family. You can contribute to such an account by April 16th, 2012 and deduct it on your 2011 tax return. 

9. Convert traditional IRAS to ROTH IRAS. The conversion is taxable. If you are in a low tax bracket and have the funds to pay the tax, it may be advantageous to convert since all future appreciation would be free of income tax if left in for the required 5 year period.