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A Pathway To Riches

The Tax Axe

Get ready for the 2011 Tax Filing Season

Overall, it has been a good summer and looks like a nice fall season on the way. However, tax filing time is just around the corner. This year you need to keep a close eye on the events in Washington as well as your state legislation. The budget cap issue has been temporarily resolved and it will become an issue again in 2012. The bi-partisan committee will be looking at specific ways to implement deficit reduction and you know it will have to include tax legislation, some of which may be put in place this year. Ideas include restructuring of the marginal tax rates, surcharges on sales of residential rental property sales, and possibly certain personal home sales for higher adjusted gross income filers. That’s a lot of possibilities.


Nonetheless, we recommend you begin gathering information for your tax accountant, or your own use, if filing using any one of a number of over the counter programs. Organization is the key to successful filing. Be sure to keep an accurate check register and file folders for your itemized deductions, education costs, and contributions to Individual Retirement Accounts.Also, fully document any other tax related occurrences such as property losses, lottery winnings, eligible job expense deductions, etc.  If you are an investor keep all your brokerage accounts handy and review them to determine if you want to take advantage of capital losses to offset gains.Remember that if you are self-trading your cost basis records are extremely important.


As always, if you can control some of your income, it is advisable to defer income to a later year (unless you know that later year will result in large income and/or higher tax), and accelerate deductions for itemized deductions. If you are employed, do your best to maximize your deferred income in plans like 401k, 403b and 457 accounts. If you do charitable giving, make your contributions prior to December 31, 2011 Non-cash donations valued over $500 must be itemized and appraised in order to qualify. Special documentation rules apply to automobiles and higher value items. Cash gifts over $250 must have a receipt as well as a cancelled check.


If you are fortunate enough to have substantial investments, one tax reduction tool is to gift cash or income producing property to family members, divesting yourself of the earnings on the asset. Gift taxes are not due on gifts up to $13,000 per year per individual recipient. Joint filers may double that amount.Remember the maximum is per recipient not the number of recipients.


Finally, consider tax exempt investments like municipal bonds or tax exempt mutual funds. Some of these may also be state tax free – check with your tax advisor or investment advisor.


Remember, organization is the key to a successful tax return.


For more details refer to Chapter 5, in the book, Count Your Beans!!, A Pathway to Riches.


W. Ralph Sommers, M.A., E.A.






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