Year-End Tax Tips for 2011

The end of the year is just around the corner, which means you need to think about closing the books on 2011 from a tax management perspective. After all, while we are commanded to render unto Caesar that which is Caesars, there is no reason to give Caesar one penny more than he deserves. A few minutes of smart planning now will give you a smaller tax bill in April 2012 and help you ensure Caesar isn’t taking more than his fair share.

Managing your 2011 tax bill revolves around efficient use of credits and deductions. Some key provisions in the tax code are being eliminated at the end of the year, and with an election year ahead you want to have your affairs in order before the flurry of changes likely to happen before November.

Get Your Gifts in Now

One key tax management move to make in 2011 is also a smart estate-planning move. For 2011, you can make gifts of up to $13,000 to an unlimited number of individuals. While you may not have $13,000 in cash to give, this can be an equivalent gift of property, stocks, or collectibles. It can be useful for transferring ownership on vehicles, land owned jointly by multiple family members, or simply reducing the overall value of an estate.

Max Out Tax Credits

Another key area to give your attention to is your tax credits. These include credits for home improvement projects and higher education tax credits. Since these are essentially kickbacks for spending you are already planning to make, you don’t want to leave this money on the table.

For 2011, there is a flat $500 home improvement credit for making energy-efficient improvements. This is a lifetime credit, so if you have taken credit in previous years, you won’t be able to claim it. However, if you installed energy efficient windows or improved your insulation system (all great things to do anyway!) you should be sure you account for that in your tax planning. For certain projects, such as putting in a geothermal or wind power system, you may be able to get a credit equal to 30 percent of the cost.

In higher education, a $4,000 credit for qualified school or training expenses is set to expire at the end of 2011. This is an above-the-line credit back, so don’t miss out. Note that the funds can include academic periods that extend into the first three months of 2012, meaning you may be able to max this out by pre-paying some collegiate or private training expenses.

Double Check Your Deductions

After working through your credits, make it a point to double-check your deductions. This is especially important for readers with their own off-the-grid businesses and readers thinking of making a big purchase. Why overpay your taxes when it turns out that an expense would have been deductible?

For businesses, often-overlooked deductions include postage costs, communication expenses, and transportation fees. You can deduct the cost of mailings to customers, the price of a second Internet connection for your business, or taxi fares on business trips. All of these small things can add up to big savings.

For those considering a major purchase, think about how you will deduct sales taxes at the state and local level. Congress is not planning to continue a currently existing deduction for state and local general sales taxes versus state and local income taxes. If you use this deduction, you’ll want to buy your big-ticket item now.

Accelerate Expenses and Contributions Where Possible

Last but not least, accelerate your expenses and contributions where possible. This will ensure that you max out potential savings on medical expenses and other special yearly savings accounts that expire December 31^st. You’ll also want to make any IRA or Roth contributions as soon as you can. Accelerating expenses and sheltered contributions like this will lower your net taxable income, reducing your overall tax bill.

Celebrate the holidays knowing you’ve done the right financial planning for the year. You don’t have to dramatically change your ways, just double check that you are making the right choices to avoid paying extra taxes. A little work now will make April 15^th much, much less painful.