Every time I meet a client and ask them what their biggest expense is, most folks say it’s their house, kid’s education, or spouse spending too much money! But, for almost everyone, taxes are your biggest expense. With the year coming to a close, I thought it would be helpful to pass along a few tips that may ease your tax burden for 2011. Though taxes may be the last thing on your mind during the holidays, it’s not too late to take advantage of these 11 strategies:
- Maximize your contributions to your 401(k), SIMPLE, or 403(b) retirement plans. You must make your employee contribution prior to Dec. 31, 2011, to get a deduction for this year.
- You have until April 15, 2012, to make your Roth, traditional, or non-deductible IRA contributions.
- If you’re over 50, you can put an additional $5,000 into either of your 401k plans (IRA or Roth) or $1,000 extra into your traditional IRA or Roth for 2011.
- Make your donations prior to year end. Donations can include cash to a qualified charity, or non-cash donations to charities such as Goodwill. Also keep detailed records of these donations.
- If you normally make estimated tax payments or know that you may owe additional state taxes, do the calculations and pay prior to Dec. 31 to ensure a deduction for 2011.
- If you’re a business owner and pay yourself or your employees, make your payroll tax deposit with the IRS prior to Dec. 31 to deduct your employer portion of taxes in 2011.
- The “SUV” deduction for small businesses still exists. You can deduct up to $100,000 for a qualified SUV purchase (generally over 6,000 pounds) in 2011. So if you bought a SUV for $51,000 and it was 100% business use, you can take a $51,000 deduction in 2011. Of course, your deduction could be limited based on your business use of the vehicle.
- If you’re able to defer income to 2012, you can delay paying taxes on that income until 2012. This makes sense if you think your tax bracket will be lower – or even the same – the following year because it defers paying Uncle Sam for an additional year.
- For small businesses that are cash-basis taxpayers, pay as many bills as you can in 2011 to increase your deductions.
- If you have a medical reimbursement account through your employer, some plans now allow you to use those funds until March 15 of the following year. Be sure to use these tax-free dollars!
- If you did a ROTH conversion in 2010 and are spreading your tax bill over two years, you may need to make estimated tax payments in 2011 and 2012.
As with any tax advice, your situation could require more tax planning, so be sure to discuss it with your tax advisor.
Raj Chokshi CPA, MBA, CFP®
Partner, Senior Wealth Manager