My Year-end Tax Planning Here are some thoughts for those of you who want to start working on your tax planning: If you have any control over what your income is for 2011 and 2012, now is the time to figure out if you want more or less income in 2011 or do you want to move it into 2012. If you are able to make contributions to a self-employed 401(k) based on your self-employed earnings, you need to be sure to have the paper work to open this program completed by December 31, 2011, even though you do not have to make the contribution until next year. One important idea I recommend to my clients is to be sure you are going to have enough in all Schedule A deductions to get over the limit for the standard deduction amount (this limit varies by age and filing status).  Here are several issues to consider in this area: If you think you will owe state taxes for 2011 when you complete your return, you may want to make an estimated deposit to the state before December 31, 2011, if you want or need the deduction as part of your Schedule A Itemized Deductions for 2011. This is because you are a cash basis reporting taxpayer and you get the deduction in the year you make the payment. If you will not be itemizing for 2011, then make this payment in January 2012 for the 2011 taxes. You may also want to decide if you have some charitable contributions to make by year-end in order to get that tax deduction for 2011. If you are itemizing for 2011, then date and mail the checks by December 31, 2011. If you are using the standard deduction for 2011, date and mail the checks with a January 2012 date. If you can get a medical expense deduction for 2011 because your medical expenses will exceed 7.5% of your adjusted gross income, then get some of those yearly items taken care of before year-end. This might include eye exams and glasses, dental work, year-end doctor visits, or tests that need to be done. Again, if you are not itemizing in 2011, then push these items off to next year. A potential medical expense is the mileage to get your medical care including picking up your medicines every month at the pharmacy. This might be a good time to do some house cleaning and donate those items you were thinking about during the summer. Be sure to make a list, get the values documented and get the items to the charity of your choice. You may have some energy efficient credits available to you in 2011 that are scheduled to disappear for 2012 (yes, I know Congress may pass some legislation, but if they don’t these credits will be gone). Check out the IRS website for energy credits to get the complete list of what you can have done to get the credits. What is the value to you of doing this work? Well, for itemized deductions issues, if you are in the 25% tax bracket and can increase your deductions by $1,000, then you have just given yourself a $250 gift that you will get when you file your return for 2011. If these items do not help you for 2011, then they should help you in 2012. Knowing now that you will have these savings in 2012 will allow you to change the withholding of taxes from your wages for the full year. That gives you a gift that you will be receiving every pay period for the next 12 months – a gift that just keeps giving! Now might be a great time to figure out if you are able to contribute to a Roth IRA in addition to the amounts you are contributing to your 401(k) or 403(b) or other tax deferred program at work. For most of us, the Roth IRA is a very valuable part of our retirement planning. They are easy to set up with a mutual fund company so you can contribute an amount every month (how easy can it possibly get!) so that by year end 2012, you have it all taken care of. So get your 2010 tax return out, get your 2011 pay stubs together and do a little tax planning for 2011 and 2012 during the next few weeks. Not sure how all this fits together? Then make an appointment with your tax professional in the next few weeks and get a plan developed for the next 15 months. Here are some thoughts for those of you who want to start working on your tax planning: If you have any control over what your income is for 2011 and 2012, now is the time to figure out if you want more or less income in 2011 or do you want to move it into 2012. If you are able to make contributions to a self-employed 401(k) based on your self-employed earnings, you need to be sure to have the paper work to open this program completed by December 31, 2011, even though you do not have to make the contribution until next year. One important idea I recommend to my clients is to be sure you are going to have enough in all Schedule A deductions to get over the limit for the standard deduction amount (this limit varies by age and filing status).  Here are several issues to consider in this area: If you think you will owe state taxes for 2011 when you complete your return, you may want to make an estimated deposit to the state before December 31, 2011, if you want or need the deduction as part of your Schedule A Itemized Deductions for 2011. This is because you are a cash basis reporting taxpayer and you get the deduction in the year you make the payment. If you will not be itemizing for 2011, then make this payment in January 2012 for the 2011 taxes. You may also want to decide if you have some charitable contributions to make by year-end in order to get that tax deduction for 2011. If you are itemizing for 2011, then date and mail the checks by December 31, 2011. If you are using the standard deduction for 2011, date and mail the checks with a January 2012 date. If you can get a medical expense deduction for 2011 because your medical expenses will exceed 7.5% of your adjusted gross income, then get some of those yearly items taken care of before year-end. This might include eye exams and glasses, dental work, year-end doctor visits, or tests that need to be done. Again, if you are not itemizing in 2011, then push these items off to next year. A potential medical expense is the mileage to get your medical care including picking up your medicines every month at the pharmacy. This might be a good time to do some house cleaning and donate those items you were thinking about during the summer. Be sure to make a list, get the values documented and get the items to the charity of your choice. You may have some energy efficient credits available to you in 2011 that are scheduled to disappear for 2012 (yes, I know Congress may pass some legislation, but if they don’t these credits will be gone). Check out the IRS website for energy credits to get the complete list of what you can have done to get the credits. What is the value to you of doing this work? Well, for itemized deductions issues, if you are in the 25% tax bracket and can increase your deductions by $1,000, then you have just given yourself a $250 gift that you will get when you file your return for 2011. If these items do not help you for 2011, then they should help you in 2012. Knowing now that you will have these savings in 2012 will allow you to change the withholding of taxes from your wages for the full year. That gives you a gift that you will be receiving every pay period for the next 12 months – a gift that just keeps giving! Now might be a great time to figure out if you are able to contribute to a Roth IRA in addition to the amounts you are contributing to your 401(k) or 403(b) or other tax deferred program at work. For most of us, the Roth IRA is a very valuable part of our retirement planning. They are easy to set up with a mutual fund company so you can contribute an amount every month (how easy can it possibly get!) so that by year end 2012, you have it all taken care of. So get your 2010 tax return out, get your 2011 pay stubs together and do a little tax planning for 2011 and 2012 during the next few weeks. Not sure how all this fits together? Then make an appointment with your tax professional in the next few weeks and get a plan developed for the next 15 months.