Last Minute Tax Moves Before the New Year

Tax Planning

With just a few days left in 2011, there are still some final moves you can make to save money on your taxes this year.

Last Minute Tax Moves
Last Minute Tax Moves

First, if you are employed by a person willing to hold off on paying you your last pay check and bonus that may be due you this year, you can shift this income to next year.

If you run your own business, and are on a cash basis, by holding off sending out the final bills of the year just a few days, you’ll avoid having a fast paying customer send you income in 2011. These strategies work best if you find that you will be in a higher bracket than usual in 2011 and benefit from this income shift from one year to the next.

Another thing to consider is if you have stocks currently selling below your cost, you can take up to $3000 in losses against ordinary income. Losses first offset gains, thus you may just benefit by the favorable capital gain tax rate, not your full marginal rate, with any losses beyond $3000 still remaining used to offset future gains. Ginita Wall’s Harvest Time for Tax Losses offers the full details of this tax saving strategy.

Next, let’s focus on the itemized deductions you may be able to take advantage of. Some of the more common Schedule A deductions include Real Estate Taxes, Home Mortgage Interest, Home Equity Line Interest, State Income Tax, and Charitable Donations.

It’s possible that you are not able to itemize as you’re not above the standard deduction amount for this year, $5,800 single/ $11,600 joint. By pulling in some of the payments within your control, you may find you are able to get over that threshold and itemize every other year.

The real estate tax bill may be due Jan 1, but payable by Feb 1. This is an opportunity to pay it in December and add those dollars to this year’s deduction. Similarly, the next mortgage payment, due Jan 1, contains the payment for December’s interest. By making this payment by Dec 30, you’ve just pulled that deduction into this year. For the philanthropic readers, you may consider pulling in much of your 2012 charitable donations into 2011.

If you’ve always been close to itemizing, this strategy alone can help make those donations deductible. To put it simply – you’d make your donation in January and December of the odd number years only. The charities will see the same money coming in, but to the IRS you’ve become an every-other-year itemizer.

Another tax saving trick for this year – the Charitable IRA Contribution. Unless Congress extends this ruling again, 2011 is the last year those who are 70-1/2 or older can direct IRA administrators to send an IRA withdrawal directly to a charity of their choice.

There are multiple benefits to this strategy, for those who are charitable, but don’t itemize, the tax benefit of the donation is lost. Since this contribution counts as an RMD (Required Minimum Distribution) but is not included as income to the IRA holder, the benefit of avoiding taxes on that contribution is back. If the amount donated is greater than the RMD, it helps reduce the future RMDs by reducing the account balance.  The provision allows individuals 70-1/2 years and older to exclude up to $100,000 of their qualified charitable distribution from gross income until December 31, 2011.

Last – you have until April 17th to fund your 2011 IRA. $5000 if you are under 50, or $6000 if you are 50 or older in 2011. It’s deductible if your MAGI (modified adjusted gross income) is under $56,000 if you are single and $90,000 if you are married filing jointly.  Your IRA contributions are reduced or phased out once you reach these income limits.

You can also check out the TurboTax tax calculator or TurboTax online if you want to see how your taxes will be impacted by making these tax moves.

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