Year-End Tax Steps To Consider

In this post, I'll provide a few checklists of year-end activities to help you:

• be aware of the range of deductions/tax breaks you're legally entitled to
• avoid some common risks most taxpayers don't realize they're exposed to
• learn some useful tips if you own your own business or own alternative investments

When it comes to ‘year-end' planning, there are certain numbers that should be pretty well established by this time:

• For instance you should have a good idea what tax bracket you are in and how close you are to the next bracket down and the next bracket up.
• If you are self employed, you should have a good handle on your taxable bottom line (before and after Section 179 and/or First Year Bonus Depreciation).
• You should also know the value of your retirement accounts and whether or not you are required to make distributions. Indeed, how much are you required to distribute.

Start by making your best estimate of these and we may find a few ways to allow you to improve these key numbers in your favor:

For Individuals

• Bunch your miscellaneous itemized deductions so that you can get over the 2% fence, as some portion of them may become deductable (without bunching, none are). Pay them this year instead of next. Then skip next year.
• Do the same with other itemized deductions if you can; such as medical expenses, state taxes, and charitable contributions.
• Estimate your 2012 income as against your 2011 income. Try to time deductions to coincide with the higher income year. Better if they are used against higher tax bracket income.
• Sell securities that are losses before you sell the gainers. Remember that you can re-buy them after just thirty days, but not before.
• Give appreciated stock instead of cash to your favorite charities. If you have held the stock for a year or more, you can deduct the market value, rather than the cost. You could replace this stock with a purchase as well and don't have to wait thirty days.
• If you have sold loser stocks earlier this year, then this is a good time to sell the gainers at least up to the level of the losses you incurred.
• Invest in Residential Energy Efficient Property and/or Nonbusiness Energy Property for the tax credits.
• If over 70 ½ years of age, make Qualified Charitable Distributions from your IRA. Up to $100,000 to an approved charity is without tax strings.
• If over 70 ½ be sure to take the required distributions from your retirement accounts.