CPA, Accounting, Accountants, Tax Preperation, Menomonee Falls

Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. And even if there’s no major tax legislation in the immediate future, Congress next year still will have to deal with some issues, such as whether to once again “patch” the alternative minimum tax, 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). With an economy that is still struggling, a federal deficit that is staggering, and a Presidential election on the horizon, it’s relatively clear that 2013 will bring some major change. Below is a list of actions based on current tax rules that may help you save dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan.

Some key highlights for the 2011 tax year include:

For tax year 2011 and 2012 the tax rates will remain at 10%-35%
Personal exemption amount is $3,700
Itemized deductions will not be reduced for higher income taxpayers
0% capital gains and qualified dividend income for individuals in the 10% and 15% tax bracket
$250 teacher supply deduction is extended for 2011 and 2012
Deduction for sales tax in lieu of state and local income tax
Deduction for mortgage insurance premiums
Child tax credit will be $1,000 for 2011 and 2012
Dependent care credit is $3,000 for one child and $6,000 for more than one child for 2011 and 2012
The residential energy efficient home credit is extended indefinitely. However, the maximum credit allowed per home after 12/31/10 is a 10% credit and is limited to $500 overall and individually at $200 for windows.
Student loan interest deductions are allowed for the total repayment term through the end of 2012
Tuition and fees deduction is available through 2011
Conversion of traditional IRA to Roth. If you completed a Roth conversion last year, and deferred to pay the tax, half of the tax will be included in your income this year
If you are age 70 ½ or older, you can have (up to $100,000 of) charitable contributions made directly to a charity by your IRA custodian.
Annual gift tax exclusion remains at $13,000 per person

Depreciation highlights

Section 179 of up to $500,000 on new or used equipment purchases
Qualified leasehold improvements, qualified restaurant property,
Business owners can claim 100% of the cost for new property purchased

The following are 2011 contribution limits:

401(k) and 403(b) is $16,500 , with a catch-up provision of $5,500 for those age 50 and older
Simple 401(k) and Simple IRA is $11,500 , with a catch-up provision of $2,500 for those age 50 and older
Traditional and Roth IRA is $5,000, with a catch-up provision of $1,000 for those age 50 and older
Coverdell Education Savings Account is $2,000 per beneficiary
Health Savings Account is $3,050 for self-coverage and $6,150 for family coverage, with a catch-up provision of $1,000 for those age 55 and older
Self-employed individuals can contribute 20% of their self-employment income up to $49,000.

The following are mileage rates for 2011

Business mileage is (Jan 1-June 30) 51 cents and (July 1-Dec 31) 55.5 cents
Moving/medical mileage is (Jan 1-June 30) 19 cents and (July 1-Dec 31) 23.5 cents
Charitable mileage is 14 cents

When Congress dealt with the Bush tax cuts at the end of 2010, the effect was to delay a decision for two years. These laws are now set to expire on December 31, 2012. If Congress does not act, most of these benefits will disappear, and taxes will automatically increase to pre-2001 levels on January 1, 2013.

2013 highlights

The highest marginal income tax rate will increase from 35% to 39.6%
The capital gains rate will increase from 15% to 28%
The highest tax rate on qualifying dividends will go up from 15% to 39.6%
The estate tax exemption will drop from $5 million to $1 million
The top estate tax rate will rise from 35% to 55%
Section 179 drops from $500,000 to $25,000
- Some future changes that have already been enacted but not yet in effect (effective Jan 1, 2013)
  - A new Medicare Hospital Insurance (HI) applies to high income taxpayers. The tax is 0.9% of earned income in excess of $200,000 for single filers ($250,000 for joint filers)
  - A 3.8% tax applies to investment income (including dividends, annuities, royalties, and rents) for the same individuals.
  - Itemized deductions for unreimbursed medical expenses is increased to 10% of adjusted gross income (from the current 7.5%)

Year-end planning started now will give you more time to achieve your tax-saving goals. As skilled professionals, we have the knowledge and experience to assist you with all your planning needs, both now and in the future. For more information on our services, contact us today. We look forward to meeting with you soon.

Tax Planning