Full Disclosure…I Am Not An Accountant

Well…2011 is nearing an end (do I hear cheers); the market is down over 3.00% today as I am writing this, so I don’t blame you for being a bit anxious about 2012.  But before we focus on things to anticipate for 2012, let’s take a look at some tools investors should pay a little more attention to before 2011 comes to an end.

I am not an accountant, but I sense year-end tax planning is taking on new urgency this year. Although current tax rates are scheduled to remain in effect through 2012, anything could happen as Congress and the White House grapple with ways to shrink the federal budget deficit. The bottom line: Review your possible deductions and take those deductions now while you can…it may soon change.

Feed your 401(k)

A good place to start is with your 401(k) or similar employer-based retirement plan. Money you contribute to your plan is excluded from your income (if it’s not a Roth), lowering your tax bill. If you’re not yet on track to max out your contributions by year-end, you can direct some extra dollars to your retirement plan during your last few pay periods. This year, workers can contribute up to $16,500 to employer-based plans. Workers 50 and older can contribute up to $22,000.

Although only a small percentage of workers contribute the maximum amount to their retirement plans, you may want to take full advantage of this tax-saving maneuver and step up your contributions in 2012. One tax-reform proposal would scale back maximum 401(k) contributions to 20% of income or $20,000 per year, whichever is less. So if you earn $50,000 a year, for example, your maximum 401(k) contribution would be $10,000.

Review your investments

Scour your taxable investment accounts for candidates to sell by year-end. You can harvest the losses to offset investment gains, plus shield up to $3,000 of ordinary income from taxes. Don’t forget to check your 2010 tax return for excess investment losses that you can use to reduce your 2011 tax bill.

Investments held for more than one year and sold at a profit qualify for the 15% long-term capital gains rate, as do qualified dividends. But this year and next, taxpayers in the two lowest income-tax brackets can take advantage of a 0% capital gains rate and sell assets at a profit tax-free. To qualify, your 2011 taxable income can’t exceed $34,500 for individuals or $69,000 for married couples.

Improve your home

This is your last chance to claim a tax credit for making energy-efficient improvements to your principal residence. The home-energy tax credit expires at the end of this year. It is worth 10% of the cost of new windows, doors, skylights, insulation, and heating and air conditioning systems, up to a maximum $500 credit (but no more than $200 can be allocated to new windows). You must install the upgrades by December 31 in order to claim the credit, but you can’t claim it for 2011 if you already took advantage of $500 or more of energy tax credits in previous years.

Give to charity

This is a great time of year to clean out your closets and garage, but you can write off donations to a charitable organization only if you itemize deductions.

If you donate your used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle’s fair-market value if the charity uses it to deliver meals, for example, or gives it to a needy individual.

Send cash donations to your favorite charity by December 31 and hang on to your canceled check or credit card receipt as proof of your donation. If you contribute $250 or more, you’ll also need an acknowledgment from the charity.

If you plan to make a significant gift to charity this year, consider giving appreciated stocks or mutual fund shares that you’ve owned for more than one year. Doing so boosts the savings on your tax return. Your charitable-contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit.

Not in the giving mood this year???  Neither am I.

Always make sure you talk to your financial professional or your accountant to ensure these or similar strategies are right for you, and…as always, thank you for your business.


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