Tax Tip: Year-End Tax Planning Tips| Tip of the Week | November 24, 2010 | No. 18

 Planning Tips to Consider:
Last week we looked at some of the pending tax increases in 2011 if congress does not act by the end of the year.  Since no one can predict what congress may or may not accomplish, the following are some planning tips to consider:• Make money now!  As we discussed last week, the tax rates may increase in 2011, so you want as much earned income as you can now versus receiving it next year. Some small business owners may have some flexibility in the timing of their billings.  You will definitely want to increase any collection efforts to receive the money in 2010. Also, some employers may allow you to “cash in” your unused vacation days for 2010, as opposed to letting them roll over to 2011.

Evaluate Capital Gains.  The current long-term capital gains rate is either 0% or 15% depending on your tax bracket.  In 2011, these rates may jump to 10% and 20%. Meet with your financial adviser to see if any investments should be sold this year.  Of course, the tax consequences of an investment strategy are just one factor to consider when deciding to hold or sell.

Change your portfolio.  You will also want to review your dividend-paying stocks and mutual funds holdings with your financial adviser. Currently, qualified dividends are taxed at long-term capital gains rates. In 2011, these may be taxed as ordinary income. Some things to consider would be to move dividend-paying investments into IRA plans. You may also want to consider moving some of these investments into tax-free investments.

Schedule an appointment.  With the return of the Estate Tax, you will definitely want to schedule an appointment with your attorney to review your estate plans.

Increase your 401(k) contributions in 2011.  If you are an employee whose marginal tax rate is increasing by 3%, consider increasing your 401(k) contribution by 1%. The after-tax effect will be about the same, but the money will be yours and not the government’s.

Green your home. With the expiring energy credits in 2010, be sure to make any improvements to your home this year. These credits are for the purchase of energy efficient windows, doors, insulation, HVAC systems, etc.

Consider your 2011 tax withholdings and/or estimated payments.  With all of the potential tax changes coming in 2011, you will want to meet with your tax adviser to make sure you don’t have a large tax bill to pay next year. According to the Joint Committee on Taxation, taxpayers with earnings of $40,000 to $50,000 per year will be looking at a tax increase of $923 in 2011. Taxpayers with earnings of $50,000 to $75,000 will pay on average $1,126 more in taxes next year. Higher income individuals will obviously be paying even more in 2011.

As you all know, the only thing that is constant is change.; Some changes, however, are better than others!
Warm wishes to you and your family for a wonderful Thanksgiving.  May you enjoy good food and all the blessings of the season.  Thank you for your business and support throughout 2010.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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