A Holiday Treat: Year-end Tax Tips
For a more Prosperous New Year
By
Wendy Lalli
Public Relations Chair of Downtown Chicago IFBWC
We thought that this time of year would be the perfect moment to offer our members some tips on how to save on their taxes. So we turned to Martrice Caldwell of M Caldwell Enterprises (martrice.caldwell@gmail.com) - CPA and a new member of the Illinois Federation of Business Womens’ Clubs to help us. Here are some strategies* Martrice suggests can help lighten your 2011 tax burden and make your future a bit more secure.
Defer Income
-Just contribute a bit extra to your 401(k) or SIMPLE plan. The money you put aside is that much less Uncle Sam can tax now and it will add that much more to your retirement income - and your peace of mind.
-Contribute to a flexible spending arrangement (FSA) for expenses you anticipate incurring for healthcare and childcare. The money is put in an escrow fund and the government can’t tax it. Yet when you need to pay a medical bill or for childcare you can withdrawal it from this fund. Caution: FSAs have a use-it-or-lose-it feature. If you don't spend your full contribution, the money is lost; it doesn't carry over to the next year. So make sure you work out just how much you’re likely to spend on health and childcare than contribute that amount to a FSA.
Accelerate Income
Taxpayers should plan ahead for long-awaited tax changes that may occur in 2013. To prepare for these changes consider:
-Asking your employer to pay out bonuses in 2011 instead of next year
-Selling off stocks and other investments with taxable gains in 2011 instead of next year to absorb capital loss carryovers or to lock-in gains at the 15% rate
-Converting pre-tax retirement savings to a Roth account to lock-in a known tax liability.
Accelerate your Deductions
-Pay tax deductible expenses in 2011 instead of 2012, such as medical bills, charity donations and property tax.
-Sell off stocks and other investments that have lost value so you can take the losses on your 2011 return.
-Pay January mortgage in December.
-If you have a home office, deduct a percentage of your house expenses - utilities and water. (Consult with a tax specialist like Martrice to find exactly what percentage of these expenses is appropriate for you.)
Defer Deductions
-Put off paying your medical bills, charity donations, property taxes, and other expenses that are deductible until early next year.
-Consider funding a Roth IRA instead of a tax-deductible traditional IRA. By forgoing the deduction, you'll be locking in a known tax rate on your contribution in return for tax-free investment returns.
Claim Tax Credits
- Get credit for making your home energy efficient or buying energy-efficient products. Go on this link for more information -
American Opportunity Tax Credit. Note: This program was supposed to end in 2010 but it has been extended for an additional two years through December 2012 by the Tax Relief and Job Creation Act of 2010. It enables more parents and students to qualify for, the American Opportunity Tax Credit, to pay for college expenses. For details click here: http://www.irs.gov/newsroom/article/0,,id=205674,00.html.
Pay Attention to Expiring Current Provisions
-Classroom expense deduction expires at end of 2011. Teachers can deduct up to $250 for books, supplies and other expenses related to their classroom until then.
-Mortgage insurance premiums can still be deducted for 2011. But this is scheduled to be the last year for this deduction.
-Sales tax deduction will also end in 2011. This is an optional itemized deduction that can be taken instead of the deduction for state and local income taxes paid.
-Deductions for college tuition expire at the end of 2011. But if you pay for classes starting early in 2012 before the end of 2011, you can still deduct up to $4,000 on your 2011 tax return.
-Mass Transit Fringe Benefit Reduced. For 2011, the tax-free exclusion for mass transit fringe benefits was set at $230 per month and was the same amount for tax-free parking benefits. The 2012 amount for mass transit benefits eligible for tax-free treatment will only be $125 per month; while the parking benefit amount will be set at $240 per month.
Hope this helps you save some money this year - and next - for a happier and more prosperous holiday!
Wendy Lalli is a freelance marketing and public relations writer who also coaches professionals in transition or seeking career advice (www.wendylallicoach.com). She writes marketing and corporate communications for ad agencies, banks, and businesses as well as copy content, articles, and blogs for Web sites, newspapers, magazines, businesses, and non-profit associations. Her written communications web site is www.wendylalli.com.
M Caldwell Enterprises is one of the leading firms in Chicago providing quality, personalized financial guidance to local individuals and businesses. It offers a variety of services including basic tax management, accounting services and financial statement compilations. Combining expertise, experience and the team mentality of its staff, M Caldwell assures that every client receives the close analysis and attention they deserve. The company’s dedication to high standards, hiring of seasoned tax professionals, and work ethic is the reason clients return year after year.
*To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.
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