Tax Planning & Practice Guide
Tax Saving Moves for the Rest of 2011
Taxpayers and their advisers engaged in year-end tax planning for 2011 once again are challenged by a highly uncertain legislative environment. Before year-end, the Joint Select Committee on Deficit Reduction may issue, and the full Congress may vote on, a report that could include major tax reform for 2012 and beyond. And even if there’s no major tax legislation by year-end, Congress next year still will have to grapple with a host of thorny issues, such as whether to once again “patch” the alternative minimum tax (e.g., to avoid a drastic drop in post-2011 exemption amounts), and what to do about the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains and qualified dividends), and the expiration of the Bush-era rules for estate and gift taxation, and the transfer tax rules in the 2010 Tax Relief Act, effective for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.
It should be kept in mind, however, that businesses and individuals can achieve important tax savings by taking advantage of tax provisions that are in place this year, but are scheduled to expire on Dec. 31, 2011, unless Congress acts to extend them. For businesses, these breaks include: 100% bonus first year depreciation; a $500,000 cap on Code Sec. 179 expensing; being able to claim up to $250,000 of expensing (within the overall dollar cap) for qualified real property; and a tax credit for qualifying research expenses. For individuals, tax breaks expiring at the end of this year unless Congress acts to extend them include: the option to deduct state and local sales and use taxes instead of state and local income taxes; tax-free distributions by those age 70-1/2 or older from IRAs for charitable purposes; and a tax credit for energy saving home improvements. Also, individuals who buy qualified small business stock before Jan. 1, 2012 will be able to exclude 100% of the gain on the sale if they hold the stock for more than five years.
Year-end planning for 2011. This Tax Planning & Practice Guide generally is oriented towards the time-honored approach of deferring income and accelerating deductions to minimize 2011 taxes. For individuals, deferring income also may help minimize or avoid phaseouts of various tax breaks based on a taxpayer’s adjusted gross income (AGI). As always, however, year-end tax planning doesn’t occur in a vacuum. It must take account of each taxpayer’s particular situation and planning goals, with the aim of minimizing taxes to the greatest extent possible. While most taxpayers will come out ahead by following the traditional approach, others with special circumstances may do better by accelerating income and deferring deductions.
Valuable year-end planning moves you will find in this Tax Planning & Practice Guide include making the most of enhanced expensing and 100% bonus first year depreciation, keeping AGI down to avoid reduction (or elimination) of the many tax breaks that phase out over higher levels of AGI, making the best tax use of stock market losses, taking full advantage of the credits available for energy saving home improvements and the up-to-$100,000 annual exclusion for IRA payouts to charity (for those age 70 1/2 and older), traditional-IRA-to-Roth-IRA conversion, recharacterization, and reconversion strategies, planning moves for beneficiaries of IRAs and qualified retirement plans, increasing withholding on salaries and wages to avoid the estimated tax underpayment penalty, making year-end gifts of appreciated property to shift taxable gain to lower-bracket family members while taking advantage of the annual gift tax exclusion, and disposing of passive activities to free up suspended passive losses.
This Tax Planning & Practice Guide describes the moves to make by year-end to achieve maximum overall tax savings for 2011 and later tax years. It explains how to set basic planning goals and how to adjust income and expenses accordingly.