Year-End Tax Planning (2011)

As the end of the year approaches, you are once again reminded of the unique opportunities in store to reduce your taxes. Planning includes traditional considerations such as deferring income and accelerating deductions, timing of capital gains to match capital losses, and making last-minute contributions to tax deferred accounts such as retirement accounts. But, because of the unique tax climate we currently face, with the Bush tax cuts scheduled to expire at year end and question as to whether Congress will extend some or all, year-end tax planning takes on additional complexities. The traditional plan of deferring income and accelerating deductions could actually be detrimental for an individual who could be looking at a higher marginal tax rate in 2011. It may be wise to defer final decision making until later in December to see whether Congress acts upon any tax legislation in their lame-duck session   Other considerations: Making charitable contributions with appreciated stock, since you receive a deduction for the fair market value of the stock and the gain goes untaxed, Paying your January 1 mortgage payment early and your winter real estate tax and fourth quarter estimated state and local income tax by December 31 if you can itemize, Minimizing taxable income to reduce your taxable social security benefits, Paying expenses using a credit card to accelerate deductions without the need for immediate cash. (Caution: Use extreme care with this strategy and only pay expenses that you can pay off with your next billing statement), Bunching medical expenses and/or miscellaneous itemized deductions to maximize use in comparison to the standard deduction   Additional Information: Following are some new and continuing items you can expect for this year (and in some cases, for future years as well): Repeal of the itemized deduction phase out and exemption phase out at specified levels of income has been extended through 2012, 2011 IRA contributions limited to $5,000, plus $1,000 catch-up for 50 years and older, 15% maximum tax rate for Long-Term Capital Gains and qualified dividends has been extended through 2012, For 2011 Long-Term Capital Gains and Qualified Dividends will be tax-free for those in the 15% tax bracket. Home Energy Improvement Credits have been restored for one more year through 2011, but at reduced rates, Starting with 2010 there are no longer any AGI limitations for those who want to convert their traditional IRA into a ROTH IRA, The American Opportunity college tuition credit originally set to expire in 2010 has been extended through 2012, E-filing is mandatory for 2011 tax year for offices preparing more than 10 tax returns (though a client may opt out), Children under age 26 may qualify under their parent?s health insurance plan, The $1,000 Child Tax Credit has been extended through 2012, IRC ? 72 was amended to now allow annuitization of a portion of an annuity, endowment, or life insurance contract. Annuitant may allocate their cost basis over the life of the contract rather than having to treat as income up front, Reimbursements from HSAs, FSAs, MSAs, or HRAs can no longer be paid for any medication that was not prescribed (i.e. Over-the-counter medicines), Also extended are the mortgage insurance premium deduction, student loan interest deduction at expanded levels, the option to deduct state and local sales taxes instead of state and local income taxes, college tuition and fees deduction, educator expense deduction, and the option for taxpayers age 70? or older to transfer funds directly from their IRAs to charity without having to count as income (and qualifying for their RMD), The 1099 reporting requirements for landlords which was passed last year has now been repealed. This is great news for landlords, For 2011 the employee?s share of social security tax withholding was reduced by 2%. Also, self-employment tax has been reduced by 2% for the self-employed, Business standard mileage rate for 2011: Jan - Jun .51? /mile, Jul - Dec .55? ? /mile, First-year cost recovery (Bonus) depreciation is 100% of cost for qualifying assets put into service in 2011, IRC ? 179 expensing election for qualified depreciable property is available on the first $500,000 of assets put into service in 2011 (In 2012 this number drops to $139,000), The Estate Tax, Gift Tax, and Generation Skipping Transfer Tax have once again been unified. For 2011 the exclusion amount equals $5 Million. The top tax rate is 35%. Also, any unused exclusion amount (Estate Tax or Gift Tax) of a deceased spouse may be transferred to the surviving spouse for use in their estate, The de minimus gift tax exclusion for 2011 remains at $13,000 per donee, 2011 is the final year for Michigan?s energy credits: Refundable credit for purchase and installation cost of a qualified home improvement or an energy efficient appliance. These are broken down into five categories: (1) Insulation (2) Furnace (3) Water Heater (4) Windows and (5) Refrigerator, Clothes Washer, and Dishwasher. Michigan also has a non-refundable credit for the energy surcharge on your electric bill, Be aware that major changes are expected for Michigan income taxes starting in 2012 under the new legislation signed into law by the Governor on May 25, 2011 An Invitation This letter is only intended to be a cursory review of some of the current tax law changes. For more detailed review of changes that may affect you, please call this office. If appropriate, we can even make an appointment and talk further about how we can draft a year-end tax plan customized to meet your specific needs.   Other Services In addition to individual tax preparation, we offer the following services: 　 Trust and Estate (fiduciary) income tax preparation, Estate Planning, Federal Estate Tax preparation, Small business accounting, Corporate and Partnership tax preparation, Employer payroll reports, e-file: federal and state We are excited to be announcing shortly a new service from our office, enabling us to meet more of our clients? needs. Stay tuned for more details. Referrals: We appreciate your referrals very much. Therefore, we are continuing our rewards program for any referrals resulting in new clients for our office. Please make sure you notify us of any new clients you send our way. Rates for 2011: As always our fee is based upon an hourly rate. It is important to us to take good care of our clients. Therefore, we believe in good customer service and a fair fee. For 2011 our rates will be as follows: - 1040 prep & other $90/hr.

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