Tax Savings Tips for 2011 - 2012

Direct Donations of IRAs to Charity
IRA owners age 70 ˝ and older can donate up to $100,000 of their IRAs to charity through 2011 without having to report the withdrawal as income and deduct the donation as a charitable contribution. Deductions will not be limited by the Adjusted Gross Income cap on charitable contributions. Keeping IRA distributions out of adjustable gross income in the first place can also have other benefits. Amounts donated in this way count as all or part of the IRA owner’s required minimum distribution.

Higher Income Limits for Deductible IRAs and for Roth IRAs
If you are covered by a retirement plan at work, you take a full IRA deduction in 2011 if your modified Adjusted Gross Income is less than $110,000 married filing jointly) or $66,000 (single or head of household). A partial deduction is allowed until your Adjusted Gross Income reaches $110,000 if you are married filing jointly, or $75,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified Adjusted Gross Income rises between $169,000 - $179,000 if you are married filing jointly, or $107,000 - $122,000 if you are single or a head of household.

Roth IRA Conversions
In 2012, individuals with any amount of modified Adjusted Gross Income are free to convert a traditional IRA to a Roth IRA. Conversions are fully taxable at your regular tax rate. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.

Contribution Limit for 401(k) Plans
The maximum employee contribution is $16,500 in 2011 for 401(k) and similar workplace retirement plans, including 403(b)s and the federal Thrift Savings Plan. Workers age 50 and older in 2011 can put in an additional $5,500, making their maximum $22,000. For 2012, the contribution limit increased to $17,000 but, the catch up remains the same.

Tax Rate on Capital Gains
The tax rate on capital gains from the sale of assets held longer than one year remains at zero percent for people in the 10 percent or 15 percent tax brackets. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets also remains the same.

Tax Rate on Dividends
Similarly, the special 5 percent maximum rate on dividends of taxpayers in the 10 percent and 15 percent tax brackets remains at zero percent.

Estate Tax Exemption
For 2011, the exemption level is $5,000,000 with a maximum estate tax of 35%.

Higher Annual Gift Tax Exemption
For 2012, you can give any individual up to $13,000 without owing any gift tax.

Credit for Residential Energy Efficient Property
For all non-business energy property, there is a $500 maximum lifetime credit.

Educators’ Deduction
For 2011, you can deduct up to $250 ($500 if married filing jointly and both spouses are educators, but not more than $250 each) of any unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. You must have worked at least 900 hours a school year in a school that provides elementary or secondary education. This deduction expires after 2011.

Tuition and Fees Deduction
You can deduct up to $4,000 of college tuition and fees through 2011. This deduction expires after 2011.

Income Earned Abroad
The maximum foreign earned income exclusion is increased to $92,900. This is a $1,400 increase from 2010.

Exemptions for the Alternative Minimum Tax
For 2011, the exemption levels were increased to $74,450 for married couples filing jointly, $48,450 for singles and heads of household, and $37,225 for married couples filing separately.

Sales Tax Deduction
The sales tax deduction as an itemized deduction expires after December 31, 2011. Beginning in 2010, buyers of new vehicles no longer get a tax benefit for sales tax paid on new vehicles, unless they itemize and elect to deduct sales taxes instead of state income taxes.

2012 Tax Planning Tips

Lower Tax Rates Extended
The 2010 Tax Relief Act extends through the end of 2012 the tax rates in effect in 2010. They had been scheduled to increase to the higher tax rates that were in effect prior to 2001.

Estate Tax
For individuals dying after 2010, the federal estate tax continues with a $5 million exemption and a 35 percent maximum rate. The current federal estate tax rules are scheduled to end after 2012.

Lower Capital Gains and Dividend Tax Rates Extended Through 2012
The tax rate reductions for long-term capital gains remain in effect for 2011 and 2012.

Child Tax Credit
The credit of $1,000 per eligible child continues through 2012. The credit was extended by two years by the 2010 Tax Relief Act.

Payroll Tax Credit
Starting in 2011, the partial credit for payroll taxes paid by employers is no longer available.

Section 179 Expense Deduction
The $500,000 maximum amount of equipment placed in service that businesses can expense and the annual investment limit of $2,000,000 remain in effect for 2011.

Tax Credit for College Tuition
The American Opportunity Tax Credit remains in effect through 2012.

Earned Income Tax Credit (EITC)
Temporary increases in the Earned Income Tax Credit for filers with three or more children and the higher income levels for the phase out of the credit have been extended through the end of 2012.

Transportation Mileage
2011 cents per mile rate: Business – First 6 months $0.51, rate increase to $0.55 ˝ a mile from July 1-December 2011 Medical/Moving - First 6 months $0.19 and $0.23 ˝ a mile from July 1-December 2011 Charity - $0.14 all year

Bonus Depreciation
On capital equipment purchased prior to January 1, 2012, 100% bonus depreciation is allowed. After January 1, 2012, only 50% bonus depreciation is allowed. To use bonus depreciation, the property acquired must be original use with the taxpayer.

Capital Gains & Losses
Form 8949 is required for sale of capital assets. This form breaks down both short and long-term sales into 3 categories: 1) Form 1099-B shows basis 2) Form 1099-B does not show basis 3) Form 1 099 not received

Filing Tax Returns
Income levels at which individuals must file returns has increased for 2011: Single - $9,500 Single age 65 or older - $10,950 Married couple joint return - $19,000 Married couple joint return where 1 spouse is 65 or older - $21,150 Married couple joint return where both spouses are 65 or older - $21,300

2011 OASDI wage base for FICA and self employment tax purpose $106,800 rises to $110,100 for 2012.

Tax return due date is April 17, 2012

Deadline for 2011 IRAs, HAS & MSAs is April 17, 2012

With “Bush Tax Cuts” set to expire on December 31, 2012, most analysts believe that our historic low tax rates will be rising in the near future. With that in mind, a strategy that should be considered is: accelerated income in 2012 and deferring deductions in 2013 when tax rates may be higher.


If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.

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