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2011 Year End Tax Planning

December 19, 2011

What steps can you take to save on 2011 taxes?

As the end of the year nears, it is time to consider what actions can be taken to reduce your tax bill. It is not too late to assess your tax situation and look into opportunities that may significantly reduce what you owe as tax year 2011 draws to a close.

  1. Tax Extenders: An item to keep in mind as the end of year quickly approaches, a number of tax extenders are scheduled to expire after December 31, 2011, as of this writing. They include, state and local sales tax deduction, higher education tuition deduction and teacher’s classroom expense deduction.
  2. Capital Gain & Losses: Timing is everything. Timing the recognition of capital gains and losses at year-end may help minimize your net capital gains tax and maximize deductible capital losses.
  3. Mutual Fund Distributions: Consider redeeming mutual fund shares in taxable accounts before any year-end dividends are distributed, as they are generally taxed as ordinary income.
  4. Charitable contributions: ‘Tis the season to be giving. Not only does charitable giving benefit others but it may provide valuable tax deductions.
  5. Those who are age 70 ½ and older should also consider making a donation to a qualified charity directly from their IRAs up to $100,000 in order to avoid taking the distribution into taxable income, thus paying no tax on the distribution. This tax break, especially advantageous to those who do not itemize deductions, is scheduled to end for distributions made in tax years beginning after December 31, 2011. The amount donated is tax free and can be used to satisfy your Required Minimum Distribution each year.
  6. Fund your 2011 IRA contribution early: IRA Contributions are permitted up to the tax filing deadline, but making a contribution now can provide up to four additional months of tax-deferred growth potential.
  7. Energy Tax Incentives: For those who have replaced their roof, heating, ventilation and air conditioning systems, or windows and doors with energy-efficient materials this year may have generated tax savings. Through the end of 2011, a number of residential energy-efficient improvements qualify for a tax credit. (These include qualified windows and doors, insulation products, HVAC systems and roofing. The “lifetime” credit amount for 2011, is $500 and no more than $200 of the credit amount can be attributed to exterior windows and skylights).
  8. Gift and Estate Taxes: The annual exclusion allows you to gift up to $13,000 per year per recipient gift-tax-free without using up any of your lifetime gift and estate tax exemptions. Lifetime gift-giving, ideally on an annual basis, should continue to form part of a master estate plan. Making a gift at year-end 2011 to take advantage of this annual, per-donee exclusion should be considered by anyone with even modest wealth. A planning tip to consider is the $5 million lifetime gift exemption. Although considered lifetime and action isn’t necessary by the end of this year, the exemption is scheduled to drop to $1 million on January 1, 2013. This should be something to keep in mind between now and December 31, 2012. Though estate planning won’t necessarily affect your income tax bill, it’s a good idea to consider your estate planning goals as year-end approaches.
  9. Roth Conversions: For those who have not yet made a Roth conversion, doing so at the end of 2011 might be an opportunity worth serious consideration. Items to consider: Your present income tax bracket. How close you are to retirement. Your access to other funds both to pay the conversion tax and to delay distributions from your Roth account later.

Tax planning note: If you have converted an IRA to a Roth IRA in 2010, you were given an option to recognize all the income in 2010 or defer that income, half into 2011 and half into 2012. If you elected to defer that income into 2011 and 2012, do not forget to figure that income into your year-end planning for 2011.

For questions regarding your year-end tax planning please contact any member of our Tax Services Group at or call 888-KLR-8557.

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