2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

The end of the 3^rd quarter has passed, and similar to last year, the volatile political landscape has your tax advisor reaching for a crystal ball rather than a copy of the Internal Revenue Code.  Nonetheless, numerous tax planning opportunities remain viable for individual taxpayers, a few of which are listed below.

1 Health Savings Accounts (HSA) have become increasingly popular with employers and employees alike.  Employers enjoy reduced costs of group health insurance plans, and employees benefit from paying medical expenses for themselves and dependents with pre-tax dollars.  Remember that it is not too late to maximize your 2011 HSA contribution.  Even if you become eligible under your employer’s plan in November or December, you can still maximize your 2011 contribution.

2  Take advantage of the $3,000 annual allowance for deduction of capital losses by selling a few of those loser stocks you’ve been holding onto (an oldie, but a goodie).  Remember that you can restore your investment position by repurchasing the same stock after 31 days.  Talk to your broker or advisor, and don’t let this simple deduction get away from you in 2011.

3  If you converted a traditional IRA to a Roth IRA earlier in the year and the value of the investments held by the Roth have since declined in value, you can avoid overpaying tax on the original conversion by “recharacterizing” the conversion back to a traditional IRA.

4  Homeowners are eligible for a non-refundable credit up to $500 for qualifying energy efficient improvements made to their principal residence before the end of the year.

5  There will be no tax (yes, you read that right) on the gain realized upon the sale of qualified small business stock issued by a corporation that meets certain requirements (see your tax advisor), that is purchased before January 1, 2012 and held more than five years.

6  If you are age 70-1/2 or older, and will be forced to take a required minimum distribution (RMD) from your IRA, but don’t necessarily need the cash, consider coordinating with the custodian of your account to make a charitable donation directly from your IRA.  This approach, rather than taking the distribution and then making the charitable contribution, can provide substantial tax savings to seniors without substantial itemized deductions.

[Please note that the ideas and information presented herein may not provide benefit to each and every taxpayer.  The reader should take caution to discuss any tax strategy, not just those listed above, with his or her tax advisor prior to implementation.]