Donate appreciated securities to your favorite charity (instead of cash)

If you have appreciated stock that you’ve held more than a year, and you plan to make significant charitable contributions before year-end, keep your cash and donate the stock (or mutual fund shares) instead. You’ll avoid paying tax on the appreciation but will still be able to deduct the donated property’s full value. If you want to maintain a position in the donated securities, you can immediately buy back a like number of shares. (This idea works especially well with no load mutual funds because there are no transaction fees).

Pick The Shares You Sell To Minimize Taxes

Be choosy when liquidating only a portion of a stock or mutual fund position accumulated over time. If you’re selling less than your entire position in an investment, it’s generally best to sell the shares in which you have the highest basis (assuming they’ve been held more than 12 months). This decreases your gain or increases the loss on the sale. If the shares with the highest basis aren’t the first ones you acquired, it’s important to indicate to the broker or transfer agent the specific shares to be sold by reference to the date of purchase and cost. To complete your tax records, the broker or transfer agent also needs to send you a written confirmation of these instructions within a reasonable time after the sale.

Fund College Education and Save Income and Estate Taxes

Section 529 College Savings plans allows parents or grandparents to contribute up to $65,000 ($130,000 per couple) to a beneficiary’s account.  The account's income is allowed to grow on a tax free basis and are exempt from estate taxes.  You can also change the beneficiary or reclaim the account if necessary.  Taxes and a 10% penalty apply on income withdrawn and not used for qualifying education expenses.  These features make 529 plans an attractive way to fund college expenses and an effective estate-planning tool.  If you contribute more that $13,000 in a year a gift tax return election is required to use up to 5 years of annual gift exclusions ($13,000  x 5 = $65,000).

Take advantage of your retirement account options

Except in the case of the Roth IRA, the earnings in retirement accounts are technically tax-deferred, not tax-free. However, funding them as soon as possible allows you to save and defer more taxes. You benefit by keeping more funds invested for a longer period of time.  You also save taxes since most people are in higher tax brackets in their working years than they are in retirement.

 When deciding where to put your retirement dollars this year, it’s hard to beat a Roth IRA because of the availability of tax-free distributions if you satisfy certain conditions, the lack of mandatory distributions at age 70½, and the option of withdrawing your contributions tax and penalty free at any time.  However, if you’re eligible to participate in a 401(k) or SIMPLE IRA plan, you’ll probably want to contribute enough to that plan to receive a full employer match before contributing to a Roth IRA. Some employer plans now allow Roth contributions. You should consider that especially if you will be in a similar tax bracket in your retirement years.

Consider A Roth Conversion:

Converting regular retirement accounts into Roth IRA's should be evaluated to take advantage of the non taxable status of Roth IRA's and to avoid the required minimum distribution rules for regular retirement accounts.  Conversions may be especially beneficial if you expect to be in lower tax brakets in the current  year than you will be in in retirement years, and if you can pay the resulting tax out of non-retirement account funds.  We can help you evaluate the pros and cons of a conversion for your specific situation.

If you do not have an IRA account and are ineligible for Roth IRA contributions because your income exceeds limitations, ($167,000 Married or $105,000 single), you can make a non-deductible IRA contribution and then roll it over to a Roth.  Since your contribution was not deductible, the conversion is non taxable. 

 

Misc: IRS mileage rate, retirement limits, IRA limits, Sec 179 , FICA, Gifts

 

The standard IRS mileage rate for business auto use in 2011 is 51 cents/mile for January - June, 55.5 cents beginning in July. 

 

Maximum 401-K contributions in 2011 is $16,500, in 2012 $17,000, with an extra $5,000 catch-up contribution is allowed if over age 50.

 

Maximum IRA contributions for 2011 is $5,000. Additional catch-up contributions of $1000 are allowed for those age 50 and over.

 

Maximum pension or profit-sharing in 2011 is $49,000.  In 2012 $50,000 with qualifying compensation increasing from $245,000 to $250,000.

 

The Section 179 election to expense equipment purchases is $500,000 In 2011.  In 2012 this limit drops to $139,000 and is subject to reductions if total additions exceed $850,000.

  

FICA wage limit in 2011 is $106,800 and in 2012 increases to $110,100.

 

Annual gift tax exclusion in 2011 and 2012 is $13,000. 

 

Estate and gift tax lifetime exclusion is increased to $5,120,000 in 2012.  Without congressional action in 2013 the exclusion will revert back to a $1,000,000 amount.  Depending on the outcome of the 2012 elections, you may want to take advantage of this increased gifting level before the end of 2012.