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Happy Holidays!

As the holiday season has now snuck up on us and we are in the final weeks of 2011,  I thought it best to point out a few tax-saving strategies that can still be implemented before the 2011 tax year ends.  I know that with all of the excitement of the holidays and the last minute preparations, taxes are the last thing on your mind.  It only takes one of the strategies listed below to help to lower your 2011 tax bill though.

Just like last year, my original goal was to hold off on sending these tips out until after the President and Congress finalized their extensions of any expiring tax cuts as well as the other tax issues currently being debated, but since they have dragged their feet for a few weeks now, I thought it best to go ahead and issue these tips ahead of their decisions.  As always, please contact someone at our firm should you have any questions about the information below and how it applies to your individual tax situation.

Year-End Tax Planning for Individual Taxpayers

• Prepay your mortgage payment that is due on January 1, 2012 by December 31, 2011.  You can deduct the interest on your 2011 tax return.
• Charge deductible expenses like medical bills, state and local taxes, real estate taxes and charitable donations to your credit card.  By charging these expenses now, they become deductible in 2011 even if you do not pay the credit card bill until next year.
• Pay your state estimated tax payment that is due on January 15, 2011 no later than December 31, 2011.  This will count towards your itemized deductions on your 2011 tax return.
• Sell stock losses before the year ends.  This will help to offset any capital gains and possibly enable you to take a loss of up to $3,000 on your 2011 tax return.
• Maximize your charitable contributions and donate unwanted items before the year is over.  Please try to document the items that were donated and take pictures as well if possible.  Also, hold on to the receipts that you receive when donating.
• Exhaust all of the funds contributed to your Flexible Spending Account (FSA) by year-end. You may be able to charge expenses for 2011 through March 15, 2012, but please verify this with your employer as this is at their discretion.  Any remaining funds after the spending deadline are forfeited.
• Making energy-efficient purchases before year end will allow you to be able to take advantage of several tax credits that are still available.

Year-End Tax Planning for Business Owners

• Cash-basis taxpayers, pay any outstanding bills by December 31,2011.   This will allow you to deduct the expense in the current tax year even though the payments may not hit your account until January.
• Also for cash-basis taxpayers, remember that all payments that are received on or before December 31, 2011 are taxable in the current year.
• For accrual-basis taxpayers, write off any non-collectible accounts receivable before the year ends.
• Also for accrual-basis taxpayers, remember that your revenues are calculated based on what you invoice and bill between January 1, 2011 and December 31, 2011. Any invoices created after December 31, 2011 will be included in income for the 2012 tax year.
• If you are planning on upgrading your computer or any other office equipment, try to do so before year-end.  This will allow you to take advantage of any holiday promotions that are in effect and you can write off the entire purchase amount (against profits) for the 2011 tax year.
• Write off any obsolete inventory as of year-end.
• Purchase equipment before year end.  You can write-off up to $500,000 in equipment purchases in 2011.  If you are facing a profitable year and therefore, higher taxes, this could offer an instant last-minute deduction for your business.

There are quite a few important tax breaks that are set to expire at the end of this year and next.  If Congress does not act to extend the majority of these benefits, pretty much everyone reading this will be experiencing some form of increased taxes in the next year or two.

Tax Breaks Not Available in 2012 (Currently set to expire 12/31/11)

• The deduction of up to $250 in classroom supplies (available to teachers, other educators)
• The election to itemize state and local sales taxes in lieu of state and local income taxes (which mainly benefits individuals in states without state income taxes)
• The itemized deduction of amounts paid for private mortgage insurance
• Tuition and related fees deduction
• The option to transfer monies from an IRA to a qualified charity tax free
• The 2% Social Security Tax Reduction (currently only in place for tax year 2011, but will most likely be extended into 2012)

Tax Breaks Expiring in 2012 (Currently set to expire 12/31/12)

• The current low tax rates on capital gains are set to expire
• The phase-out of itemized deductions  and also for personal exemptions for higher income Americans will end
• The child care deduction limit of $3,000 reduces to $2,400 (which lowers this credit from a maximum of $600 per child to $400 per child)
• The Child Tax Credit of $1,000 per eligible child reverts to $500
• The lowest current personal income tax rate of 10% will end
• The American Opportunity college education credit expires
• The amounts paid for the Earned Income Credit will be decreasing
• The income tax exemption for debt forgiven on home foreclosures and repossessions will expire, thereby making any income realized on a foreclosure or repossession a fully taxable event
• The tax deduction for amounts paid for student loan interest will end

Please remember, these are general tax-savings tips and they may or may not apply to your particular situation.  It is advised that you call and speak with someone at Shurek Accounting & Taxor your own tax adviser before making any of the moves listed above if you are not 100% sure as to their deductibility.

Also, please be sure to check our blog in the upcoming weeks for updates on the current tax laws that are being debated.  Once Congress and the President finalize the tax code for 2012, we will post updates so you have all of the pertinent information.

Shurek Accounting & Tax would like to thank you for your business this past year and we hope that you and your family have a safe and enjoyable holiday season.