10 Tax Saving Strategies When Filing your 2011 Tax Return

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein, Rogoff, Olsen & Co., LLP
Updated: 1/24/12

The upcoming 2012 elections remind us that change is ever present in our country; including the change of tax legislation. Last year, the filing season kicked off with several tax filing changes that were passed by Congress. Some of this legislation will carry over to this year, but there are a few changes that you should be aware of.

As you plan to save as many tax dollars as possible this year, consider the following:

1. Bush-era Tax cuts are extended for one more year. All Bush-era taxes are in effect for all American families thru 2012. Tax brackets will stay at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent through Dec. 31, 2012.

2. Did you make an investment in a developing small business? For Qualified Small Business Stock purchased between September 28, 2010 and December 31, 2011, a zero percent effective income tax rate will apply to at least the first $10 million of gain upon its ultimate sale if applicable requirements are met. Excluded gain from these investments will not be treated as a preference item for AMT purposes, so the benefits extend equally to AMT taxpayers.

3. New Form 8949 - This year the IRS has released a new form for Capital Gains and Losses. This form should be used to report the sale or exchange of a capital asset that is not already reported on another form in your tax return.

4. Maximizing retirement account contributions has benefits. The maximum contribution for traditional or safe harbor 401k plans is $16,500 for year 2011 and $17,000 for 2012. Payroll deductions can increase your take-home pay because they reduce your taxable income. Some employers allow catch up for the current year. Other types of qualified retired plans are available to you if you own your own business. In a defined contribution plan, the maximum that may be contributed to a participant’s account is limited to the lesser of $49,000 or 100% of the participant’s compensation. In a defined benefit plan, the maximum annual benefit for the year cannot exceed the lesser of $195,000 or 100% of the participant’s average compensation for his or her highest three (3) consecutive calendar years.

5. Are you driving a “green friendly vehicle”? If you converted your vehicle to a qualified plug-in electric drive vehicle in 2011, you can take a credit that is equal to 10% of the cost of the conversion. The vehicle must have been placed in service after Feb. 17, 2009 and the maximum credit that can be taken is $4000. (http://www.irs.gov/newsroom/article/0,,id=220989,00.html)

6. Tax credits. Tax credits can be more valuable than deductions. Here are some of the ‘big’ ones:

  1. Child Tax Credit: $1,000 for each qualified child under the age of 17.
  2. American Opportunity Credit: a maximum allowable credit is $2,500 per student for each of the first four years of post-secondary education and 40% is refundable.
  3. Lifetime Learning Credit: Up to $2,000 – part time students can qualify.
  4. Child and Dependent Care Credit: If you paid someone to care for your child(ren) under the age of 13 so you could work, you are entitled to up to $3,000 paid for one qualifying individual or $6,000 for two or more.
  5. Adoption Credit: If you adopted a child in 2011, this refundable credit can be up to $13,360.

Be aware that there are phase out limits for some of the deductions.

7. Did you gift your money? For years 2011 and 2012, the top transfer estate tax rate remains 35%, but the exemption increases to $5 million. Additionally, the new law reunifies the federal estate tax exemption and the federal gift tax exemption, meaning the lifetime estate tax exemption rises to $5 million per person ($10 million per couple).

8. Did your business make capital investments in 2011? Businesses will be allowed to deduct 100 percent of capital investments in for the 2011 tax year, doubling the previous write-off figure of 50 percent.

9. Take advantage of “portability” rule for an estate: New tax provision allows a surviving spouse to utilize an unused exemption from the deceased spouse, so a married couple can exempt up to $10 million. If this is the case for your family, do not forget to make the election on the estate tax return to take advantage of this new “portability” rule.

10. Did you make charitable contributions? Donating and saving receipts can result in deductions on your return. If you are 70 1/2 and older, you may elect to take a tax-free distribution from an IRA to public charities.

As always, these are general guidelines and we suggest you consult with a tax professional regarding your particular situation before taking any action. For additional information please contact Alan L. Olsen, CPA, MBA (Tax) at Greenstein, Rogoff, Olsen & Co. – (510) 797-8661.

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