Ballston Spa, NY (PRWEB) December 29, 2011
Canty Financial Management, Inc. has developed a list of three year-end tax planning tips to consider as 2011 comes to a close to minimize tax burdens. Led by Bill Canty, CFP®, CPA, Canty Financial Management offers tax planning, tax preparation and investment advisory services in Ballston Spa, NY and Naples, Florida.
Tax Planning should take place with multiple tax years in mind. Taxpayers should compare their 2011 income and deductions with an estimate of how they anticipate 2012 will turn out. For example, consideration should be given to whether or not taxable income will be higher in 2011 or higher in 2012. Once the likely future direction of income is determined then a taxpayer can employ some common Accelerating or Deferral Strategies.
1. If income will remain similar in 2012, or if it is likely to drop lower in 2012, then consider accelerating deductions for 2011 and try to defer income into 2012.
Examples of accelerating deductions are paying tax deductible expenses this year such as medical, property taxes, State Estimated Tax, or charitable donations. You may also be able to increase your contributions to an IRA or 401k.
Examples of deferring income include asking an employer to pay out any bonuses in January of 2012 instead of in December of 2011. Another common income deferral strategy is to hold off on selling investments with gains until future tax years, and also holding off on IRA distributions.
2. If your income will be higher in 2012, as compared to 2011, then consider accelerating income into 2011, and deferring deductions into 2012.
Examples of accelerating income are asking an employer to accelerate bonuses into 2011 instead of 2012, selling off investments with taxable gains in 2011 instead of 2012, or accelerating distributions from IRA or 401k plans.
Also consider deferring deductions, such as medical, property taxes, State Estimated Tax, or charitable donations, until future years. You could also fund a Roth IRA instead of a Traditional IRA.
3. Consider Future Tax Rates
It's also time to plan ahead for future tax changes, which may occur in 2013. Effective January 1, 2013, the Bush-era tax cuts are scheduled to expire. If no changes are made by Congress and signed into law by the President before January 1, 2013 then the top tax rate will rise more than 13 percent, from 35 percent to 39.6 percent. At the same time, the maximum tax rate on long-term capital gains will go from 15 percent to 20 percent — a 33 percent increase. The maximum tax rate on dividend income, currently capped at 15 percent, will increase to 39.6 percent (a 164% rise), since dividends will be taxed like other ordinary income.
There have been various proposals to keep the tax rates the same, or increase only the top two tax brackets, but so far those proposals have not passed into law.
Every situation is unique and a qualified tax planner can assist in developing these strategies further.
About Canty Financial Management
Canty Financial Management, Inc. is led by Bill Canty, CFP®, CPA and offers investment advisory, tax planning and tax preparation services in Saratoga County, NY and Naples, Florida. To learn more, visit http://www.cantyfinancial.com.
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