That’s just one savvy move taxpayers can make as 2011 draws to a close, and one that may not be around come next year, according to Emily Vu, president of TTK & Associates, an accounting firm in Egg Harbor Township.
“If you don’t need all your required minimum distributions (RMDs), or are planning to give to charity anyway, this is a very good deal, even better than the deduction you’d get for an out-of-pocket charitable donation,” says Vu. “The funds rolled over to the charity aren’t taxed as a regular distribution, so you will keep more money in your hands and there will be more for the charity too.”
As an example, Vu notes that if you gave $10,000 from your IRA to charity through direct rollover, the charity would get the full $10,000 and you’d pay no tax. But if you took the $10,000 out of the IRA as an RMD and paid tax on it at the 35 percent bracket, you’d only have $6,500 left to give to charity. Yes, you’d get a tax benefit for donating the smaller amount, “but it wouldn’t equal what you would save by doing a direct rollover,” she says.
That’s not the only end-of-year move smart consumers can make to decrease their 2011 tax liability. Vu offers the following tips for those of any age, some of which may or may not be available at this time next year:
• If you’re paying college tuition for yourself, your spouse or any dependents, be sure to take the above-the-line deduction of either $2,000 or $4,000 depending on your income level. This only applies to tuition and mandatory school-related expenses, not room and board or optional costs.
• Teachers can take a deduction of up to $250 for out-of-pocket classroom expenses.
• In addition to deducting mortgage interest, you can deduct premiums you’re paying for mortgage insurance if required by your lender.
• Speaking of mortgage interest, if you can, make January’s mortgage payment so it can be processed by Dec. 31, and take the added interest as part of your 2011 deduction.
• If you drive a car that gets some portion of its power from a plug-in electrical outlet, you qualify for a credit – not a lesser-value deduction – beginning at $2,500 and scaling upward based on the battery capacity. This credit will expire when the market saturation reaches 200,000 cars sold.
• You can deduct your itemized state and local sales tax in lieu of the state tax deduction. Consider this if you made one or more big-ticket purchases, a new car for example, or building supplies for a home improvement project. So if you’re thinking of getting into a new ride, consider doing so before Dec. 31.
• As of Jan. 1, 2011, over-the-counter medications can no longer be reimbursed by your health plan flexible spending account (FSA). While this won’t impact your 2011 taxes, it might influence your decision on how much to fund your FSA in 2012.
• Be aware that a number of energy saving tax credits for your home improvements expire at the end of 2011, and some may not be continued. So if you’re planning to invest in a skylight, solar panels, HVAC system or even some windows and doors, try to do so before Dec. 31 to ensure you receive the credit.
Vu also notes that two important tax benefits for businesses are due to change significantly at year’s end. These are the 100 percent bonus depreciation for certain types of property acquisitions, which is due to drop to 50 percent; and Section 179 Expensing, which is capped at a high of $500,000 for certain types of property in 2011, but may be capped as low as $139,000 for 2012.
About TTK & Associates
TTK & Associates was founded by Emily K. Vu and provides a full range of accounting services that includes bookkeeping, payroll, tax planning, and tax preparation. TTK specializes in assisting individuals and business owners with tax audits and back tax problems. Its tax professionals will work with the client to resolve tax issues and fight for their right to fair treatment. For more information on TTK & Associates, call 609-484-0005 or visit www.ttkassociates.com.
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