Tax Planning
Professional Income Tax Preparation Services
The end of 2010 is coming up fast. With the year drawing to a close, now is an ideal time to review your tax situation and evaluate strategies that may help minimize your tax bill. Once December 31 passes, your 2010 tax bill is essentially set. Taking certain steps before then can make a difference.
How much you can save on your taxes depends on your individual circumstances, but examination of the following areas may be of benefit.
One of the most fundamental year-end tax planning techniques involves accelerating deductible expenses into 2010 and deferring income, if economically feasible, into 2011. With the possibility of changes in the tax brackets following the elections, the deferral or acceleration issue becomes even more complicated. By delaying taxable income you defer taxes. Delaying taxable income may also prevent you from losing lucrative tax breaks that can be reduced or eliminated altogether as your income level rises and propels you into a higher tax bracket.
With less than two months left until the end of the year, you can probably anticipate with reasonable certainty what income and deductions you will be reporting on your 2010 tax return. You may also be able to predict with relative accuracy what your income and expenses for the first few months of 2011 will include. The ability to gauge your income and expenses for 2010 and into 2011 provides a golden opportunity to shift income or expenses into one year or the other depending on what will minimize your overall taxes.
Shifting income, however, is not always a matter of simply delaying receipt of funds. Tax rules may require you to recognize certain types of income when you have earned the right to receive it, even if you arrange for its delayed payment. A professional tax planner can help you recognize the differences.
Essential year-end tax planning requires determining whether you will take the standard deduction or whether you will itemize your deductions. Consider combining deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one year or whether the adjusted gross income limits for medical or miscellaneous itemized deductions may be more easily exceeded.
If you know you will itemize deductions, accelerating or deferring them is often a question of determining your probable tax bracket for year end and the next year to maximize their after tax value. Sometimes planning is as simple as paying your estimated tax or real estate taxes in one year or the other; at other times, it’s a question of making certain you gather the right proof and follow the proper steps in time to be entitled to a deduction in one year or the other. Again, the services of a professional tax planner can help.
Year-end planning for 2010 should also involve maximizing annual contributions to your retirement plan. Since one year’s limit cannot be added to the following year if not taken, now is the time to visit this subject. While contributions to IRAs may be applied retroactively if made before the filing deadline, an individual’s elective deferral contribution made as an employee to a qualified plan, such as a 401(k) plan, must be made before the end of the 2010 calendar year.
Maximizing contributions to your retirement plan or plans before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deductibility of medical and other deductions subject to adjusted gross income floors.
With the complexity of the tax law, understanding which tax planning provisions to incorporate into your year-end tax planning strategy can be a difficult task. For a more detailed tax plan that can be customized to your particular circumstance, seek the advice of a professional and certified tax planner.
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