As the end of 2011 approaches, now is a good time to start year-end tax planning to minimize your individual and business tax burden.  Generally, year-end tax planning involves considering at least two years- in this instance, 2011 and 2012.
Before going into more specific, detailed planning tips, here are two basic principles that can help guide your overall thinking.
-if you expect your tax rate will be higher in 2012, you may benefit from accelerating income into 2011 and deferring deductions into 2012.
-if you think your tax rate might be lower next year or will be unchanged, consider deferring income to 2012 and accelerating deductions into 2011.
In drafting this letter, we have focused on tax planning opportunities that involve actions you can take during the remainder of 2011.
The current laws, including the recently enacted estate tax changes, are now set to expire, or sunset, on Dec.31, 2012. If Congress does not act, most of these tax benefits will disappear, and taxes will automatically increase to pre -2001 levels on Jan.1, 2013.
This letter does not include every tax planning opportunity that may be available to you, and it is advised that tax projections confirm planning strategies.
12/1/2011
J Sung Accountancy Corp

Jerry Sung C.P.A

 
Moving income or deductions between tax years

 Compensation and billing- If your employer is willing, compensation you earn in 2011 can sometimes be paid to you in early 2012. Your employer may be entitled to the tax deduction in 2011. If your business operates on the cash method, you can delay (within reason) sending out bills for 2011 work until late in the year, so payment comes in 2012. Alternatively, you can offer a discount to a client who prepays if you are trying to increase 2011 income.

Credit card payments- paying tax-deductible expenditures- including charitable contributions- with a credit card secures the deduction, even if you do not actually pay the credit card company until the following year.

Suspended passive activity losses- If you own a passive activity with a suspended loss, and you do not have sufficient passive income in 2011 to allow you to deduct the suspended loss, consider disposing of the activity before Dec, 31.

Tax credits for home improvements- A tax credit for qualifying home improvements may be available for improvements placed in service during 2011 but not in 2012. The credit applies to energy-efficient improvements such as insulations, exterior window, and heating and air conditioning systems. You will need to complete your purchase before Dec, 31 to qualify for the credit in 2011. The new energy efficiency tax credit is a 10 percent credit, up to a lifetime maximum of $500. The prior cap had been up to $1,500, so check to see whether you have claimed this credit in prior years.

Tax credits for alternative vehicles- several tax credits are available to purchasers of various types of motor vehicles that use fuel-saving or alternative-fuel technologies. Check with the manufacturer to see what tax credits may be available if you are considering the purchase of a new vehicle.

Zero percent tax rate on capital gains and dividends- The maximum rate of tax on qualified dividends and most long-term capital gains is 15 percent. For those whose marginal income tax rate does not exceed 15 percent, the tax rate on these special types of income is reduced to zero. The zero- percent rate applies to a single person with less than $34,501 in taxable income for 2011 and married persons filing jointly with taxable income under $69,001

Income tax prepayments- if your estimated tax payments and withholding are not high enough to avoid penalties, increase payments. Even better, if you receive wages, IRA distributions, annuity payments or other payments have the additional taxes withheld because withholding is deemed to be ratable throughout the year.
If you have a fourth quarter state estimated tax payment due Jan, 15, 2012, consider making the payment late in December if you need additional itemized deductions in 2011.

Your retirement plans- to qualify for a deduction in 2011, your retirement plan generally must be in place before the end of the year. Exceptions are IRA and SEP (simplified employee pension) plans, which generally must be funded by April 15, 2012.

401(K)	IRA	SIMPLE IRA	SELF-EMPLOYED
$16,500 ($22,000 IF AGE 50+)	$5,000 ($6,000 if age 50+)	$11,000 ($14,000 if age 50+)	20 percent of income Up to $49,000

 

Roth IRA conversion-Roth IRAs have a number of advantages over traditional IRAs, including no tax when the money is withdrawn. Consider the following:

- The conversion results in taxable income.

- The benefits of tax-free withdrawals in the future may be greater than the current tax your will pay.

- There is no longer an income limitation prohibiting high earners from converting.

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Prepared by J. SUNG ACCOUNTANCY CORP.