Only 107 Tax Planning Days Until 2012!
As we enter the fall season, we often talk about shopping days until Christmas. Well add seven days to that total, and you have the number of days remaining to make your final tax moves for 2011. While Congress debated the debt ceiling last month, they did not pass any major tax reform. With next year being an election year, it is not likely that we will see any major reforms prior to the election. So what is different for 2011, well not a whole lot. However, several of the tax breaks that were passed as part of the last minute reforms of 2010 were temporary and are set to expire at the end of this year. To take advantage of these tax breaks, it is now or never. Following is a list of some of the breaks that expire at the end of the year:
- The deduction for state sales and local sales tax in lieu of state income tax. Taxpayers in a position to benefit from the deduction may consider accelerating big-ticket purchases into this year.
- The ability to make tax free distributions up to $100,000 per year to charitable organizations by taxpayers age 70 ½ or older. Charitable minded seniors might consider transferring a portion of their IRA to charity.
- The $250 deduction for teacher classroom expenses. Qualifying eligible educators can deduct up to $250 for expenses paid in connection with certain supplies used in the classroom. Get them before the end of the year.
- The latest alternative minimum tax patch currently sets the AMT exemption amounts at $48,450 for single filers and $74,450 for married couples. The AMT is a parallel tax system that limits some deductions while disallowing others. Taxpayers whose AMT liability exceeds their regular tax liability pay the higher AMT amount. It is estimated that more than 20 million additional taxpayers would have faced an AMT liability in 2010 without the relief provided for by the latest patch. No doubt we will hear more about the AMT in the news in coming months as 2012 quickly approaches. Without further intervention by Congress; the exemption amounts revert back to $45,000 and $33,750 at the end of the year.
- The Work Opportunity Tax Credit for qualified wages paid to members of a targeted group. This credit is worth as much as $2,400 for each eligible employee with even higher credits for certain veterans and "long-term family assistance recipients". This credit is limited to eligible employees who begin work before January 1, 2012.
- 100% bonus depreciation for qualified equipment and machinery purchases. Businesses can write off 100% of new equipment and machinery placed in service after September 8, 2010 and through December 31, 2011. For 2012, bonus depreciation drops down to 50% additional first-year depreciation.
For all of you long range planners, there are several additional breaks that expire at the end of 2012. Following is a partial list of those tax breaks that expire next year:
- The lowering of individual income tax rates from 15%, 28%, 31%, 36% and 39.6% to 10%, 15%, 25%, 28%, 33%, and 35%.
- The increased child tax credit from $500 to $1,000.
- The 0% and 15% capital gain rates revert back to 10% and 20% for unincorporated taxpayers. If you are lucky enough own appreciated investments in this economy, it may be advantageous to lock in lower rates by realizing some capital gains before 2013.
- The enhanced code section 179 limits are scheduled to be reduced. Code section 179 allows first year write up to 100% of qualified property including most new or used equipment and some limited types of buildings and building improvements. In 2011, the election is available for up to $500,000 reduced dollar for dollar for section 179 property placed in service during the year exceeding $2 million. In 2012, the election is only available for the first $125,000 with a phase out beginning at $500,000. Tax year 2013 brings us even lower limits. Taxpayers planning to invest in section 179 property should consider the need to accelerate planned investments.
Although tax planning is an ongoing process, hopefully this article gets you thinking about some of the short term strategies that can be implemented quickly. It is certainly not time to panic, but it is time to start preparing. Our experienced tax professionals would be happy assist you with all of your tax planning needs.
