Personal Year-End Tax Planning 2011
It's been a good year
Tax planning in a good year has the same idea restated in several variations: Sock money away for your retirement, education and medical costs, donate to charity, and transfer assets to lower-taxed family members.
Be sure you contribute the maximum to your 401(k), including a catch-up contribution if you are at least 50 years old.
If you qualify, contribute the maximum to your Roth IRA, and your spouse's Roth IRA. If you don't qualify, consider funding a non-deductible traditional IRA and later converting it to a Roth. See my Roth IRA Conversions page for more information.
If you won't be in the Alternative Minimum Tax, you may want to pay any state tax you owe by 12/31 instead of waiting until 4/15. You can also pay your property taxes early. Not sure whether the AMT applies to you? Let's crunch some numbers.
If you've had a really terrific year, you may want to make a large charitable donation. But giving the gift all in one lump has some drawbacks, such as the charity expecting a similar gift the next year. Consider using a donor-advised fund, such as Fidelity's Charitable Gift Fund. You transfer as much as you want to the fund, and receive a tax deduction now for the whole amount. Then later, even much later, you can decide which charity receives how much and when.
Or, instead of cash, you can donate appreciated stock or other property to charity. You receive a tax deduction for the whole fair market value, and escape tax on the gain.
If you would rather keep the assets in the family, the annual gift tax exclusion is now $13,000. Gift assets which have increased in value to parents, siblings, and post-college kids who can take advantage of the lower tax rates. If you give a gift by check, either use a cashier's check or make sure your recipient cashes the check no later than December 31st.
Consider funding a Section 529 college savings account before the end of the year. Contributions to 529 plans are not tax-deductible, but they move assets out of your interest- and dividend-producing accounts. You can put money into 529 plans not just for your children, but also for people of any age and who are not family.
And finally, if you've had a great year, be sure to prepay enough tax to avoid penalties. You may want to boost your withholdings from now until December 31st, or make a payment by January 15, 2012.
You may also want to look at these pages:
Bess Kane, CPA
Burlingame - San Mateo - Foster City CPA Since '88
Answers to many of your tax questions can be found here
If you have a tax question that you think other people would be interested in, send it to me. If I use it in my Tax News Blog or on my General Tax Info Page,I'll send you a Starbucks card!
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