Year-end tax planning is especially challenging this year because of ongoing uncertainty related to whether Congress will enact sweeping tax reform. And even if there is no major tax legislation in the near future, Congress will still have to deal with a number of tricky issues in 2012, such as what to do about the expiration of the Bush-era tax cuts on December 31st. Regardless of what steps are taken, spending a little time on tax planning now is a good idea.

While our primary expertise lies in wealth management, we have worked with our CPA friends to compile these tips for you. Before acting on any of the advice in this communication, we suggest you consult with your personal tax professional. If you don’t have one that you enjoy working with, please let us know and we will introduce you to one of our trusted associates.

Federal income tax rates are the same as they were in 2010. Federal income tax rates for 2011 are 10%, 15%, 25%, 28%, 33%, or 35%.

Get Organized
This is an excellent time of year to get your financial house in order. Gather cash receipts to help you calculate possible deductions and miscellaneous payments. Do you have a hobby or activity that generates income? If so, any losses might also be eligible for deduction. Have you made home improvements? Charitable contributions? Get all of your documentation together early to make your life a little easier in April.

Contribute the Maximum to Your Retirement Plan
You have until April 17, 2012 to make IRA contributions for 2011, but the sooner you get your money into the account, the sooner it has the potential to start growing tax-deferred. Making deductible contributions also reduces your taxable income for the year. You can contribute a maximum of $5,000 to an IRA for 2011, plus an extra $1,000 if you are 50 or older. This limit can be split between a traditional IRA and a Roth IRA if you desire, but the combined limit is still $6,000.[1]The amount you can contribute to a Keogh plan depends upon the type you choose.[2]

Check Your IRA Distributions
You are required to make minimum distributions from your traditional IRA by April 1st following the year in which you reach age 70 ½. Failing to take out enough triggers a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and the amount in the account at the beginning of the year.[3]

If you would rather give the distribution to charity, you will be happy to know that the qualified charitable distribution (QCD) provisions were renewed for 2010 and 2011, allowing individuals age 70½ or over to exclude up to $100,000 from gross income that is paid directly from their individual retirement accounts (excluding SEP or SIMPLE IRAs) to a qualified charity. The excluded amount can be used to satisfy any required minimum distributions that you must otherwise receive from your IRA.[4]

Fatten Your 401(k)
Tax-deferred investing is a smart choice because it allows your money to grow tax-free until you withdraw it. Maximize your 401(k) contributions, up to $16,500 or $22,000 if you will be age 50 or older in 2011.

Go Loss-Harvesting
Selling investments such as stocks that have experienced losses, can help to offset any taxable gains you have realized during the year. If your losses are more than your gains, you can use up to $3,000 of excess loss to decrease other taxable income. If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use that loss to offset any 2012 gains, plus up to $3,000 of other income. Losses can be carried over every year for as long as you live.[5]

Delay Some of Your Income
Income is taxed in the year it is received – but why pay tax today if you can pay it tomorrow instead? Depending on your circumstances, you may want to push some of your income into 2012. It’s tough for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year. If you are self-employed or do freelance or consulting work, you have more flexibility. Delaying billings until late December, for example, can ensure that you won’t receive payment until 2012. Postponing your income is a good idea if you expect to be in a lower tax bracket next year.[6]

Give Attention to Your FSA
This time of year is when you probably need to specify how much salary you’ll contribute to your flexible spending account. Not only is it appropriate to review your changing needs, but tax-free withdrawals can then be taken from these accounts for medical, dental, and child-care costs. You will forfeit any balance left in these accounts at the end of the year, so take advantage now by filling prescriptions early, making medical or dental appointments, or scheduling elective surgeries.

Accelerate Your Mortgage Payments
Unlike rent, which is paid in advance, mortgage payments are made at the end of your occupancy period. That means your January 1 mortgage statement represents interest for December, making it eligible for a tax break this year. By accelerating that payment even by just a day, you get an additional deduction for the interest paid. Don’t get greedy though. You can’t make your February, or any other upcoming, mortgage payment early to boost your year-end deduction amounts. Tax law generally prohibits write-offs for prepaid interest (although there is an exception for loan points in some cases). Note: Accelerating your mortgage payments may not payoff if you expect to be subject to the Alternative Minimum Tax (AMT). If you are unsure, discuss the matter with your tax professional.[7]

To avoid headaches and penalties, mark your calendar with the following key dates.

January 17, 2012

4th Quarter 2011 Estimated Tax Payment Due – If you are self-employed or have other fourth-quarter income that requires you to pay quarterly estimated taxes, get them postmarked by January 17, 2012. (January 15, 2012 is a Sunday and the following Monday is a federal holiday.)

April 17, 2012

Individual Tax Returns Due for Tax Year 2011

Individual Tax Return Extension Form Due for Tax Year 2011 – Need more time to prepare your tax return? File your request for an extension by April 17 to push your deadline back to October 15, 2012.

1st Quarter 2012 Estimated Tax Payment Due

Last Day to make a 2011 IRA Contribution – If you haven’t already funded your retirement account for 2011, do so by April 17, 2012. That’s the deadline for a contribution to a traditional IRA, deductible or not, and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2012, you can wait until then to put 2011 money into those accounts.

June 15, 2012

2nd Quarter 2012 Estimated Tax Payment Due

September 17, 2012

3rd Quarter 2012 Estimated Tax Payment Due

October 15, 2012

Extended Individual Tax Returns Due – If you got a filing extension on your 2011 tax return, you need to get it completed and postmarked by October 15, 2012.

Last Chance to Recharacterize 2011 Roth IRA Conversion – If you converted a traditional IRA to a Roth during 2011 and paid tax on the conversion with your 2011 return, October 15, 2012 is the deadline for recharacterizing (undoing) the conversion. Doing so could save you money if the IRA has lost money since the time of the original conversion.




The Social Security Administration recently announced changes for 2012 as follows:

  • Based on an increase in inflation (specifically the Consumer Price Index), Social Security and Supplemental Security Income beneficiaries will receive a 3.6% cost of living adjustment for 2012.
  • The maximum annual earnings subject to Social Security taxes will increase from $106,800 in 2011 to $110,100 in 2012.
  • The retirement earnings test exempt amounts for people below normal retirement age will increase from $14,160 ($1,180 per month) in 2011 to $14,640 ($1,220 per month) in 2012. In the year an individual reaches full retirement age, the annual limit will increase from $37,680 ($3,140 per month) in 2011 to $38,880 ($3,240 per month) in 2012.

Go Green
Buyers of plug-in hybrids and electric cars benefit from a tax credit of $2,500 to $7,500, depending on the size of the battery in the car. The credit maxes out at $7,500 for cars with a 16 kWh battery pack, like the Chevy Volt. The credits were provided as part of the American Recovery and Reinvestment Act, otherwise known as the “stimulus bill.”[8] In addition, energy-efficient home improvements to your principal residence such as installing a heat pump, qualify for credit of 30% of the cost, and can be claimed on your 2011 taxes.[9]

Be Charitable
A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. If the gifts are deductible, the actual cost of the donation is reduced by your tax savings. For example, if you are in the 33% tax bracket, the effective cost of a $100 donation is only $67. As your income tax bracket increases, the real cost of your charitable gift decreases, making contributions more attractive for those in higher brackets. For a person in the highest tax bracket, 35%, the actual cost is only $65. Not only can the wealthy afford to give more, but they receive a larger reward for giving.[10]

Give a Gift
This time of year, many people choose to donate items to charity instead of making a monetary contribution. Not only does this save you money and prevent perfectly good items from getting wasted, but charitable donations can be deducted from your taxes as long as you get written documentation of the donation.

Most gifts are not subject to the gift tax. For instance, you can give up to the annual exclusion amount ($13,000 in 2011) to any number of people every year, without facing any gift taxes. Recipients never owe income tax on the gifts. In addition to the annual gift amount, you can give a total of up to $5 million starting in 2011 in your lifetime before you start owing the gift tax.[11]

Fund an Education
The American Opportunity tax credit is valued at $2,500 for 2011, up from $1,800 in 2008. Because a tax credit reduces your tax bill dollar-for-dollar, this basically means the government will give you up to $2,500 per year for each qualifying college student in your family. And unlike the old Hope credit, which only covered the first two years of college, the American Opportunity credit can be claimed for all four years of post-high-school education. You can get the maximum credit if you spend at least $4,000 in qualifying expenses, which now includes the cost of books, tuition, and fees.[12]

Buy Something Nice
Sales taxes you have paid on the purchase or lease of a vehicle, the purchase of a boat or aircraft, or the purchase or renovation of a home may all be eligible for deduction against your federal income taxes. Additionally, people who claim the sales tax deduction don’t have to report any state income tax refund as taxable income in the following year. So if your sales tax deduction is about the same as your income tax deduction, you’ll probably come out ahead by taking the sales tax deduction.[13]

In conclusion:
We hope you will find some of these strategies useful as you go through your tax planning process. One of the ways we help our clients is by working hard to provide tax-smart investment strategies to minimize the impact Uncle Sam can have. In addition, we consider it our responsibility to educate you about things that could affect your financial future. As always, feel free to contact us with any questions, and to discuss points of interest with your tax professional as there may be crucial details involved in making your plan effective.

Warm Regards,
Brad Connors, CWS®


Would someone you know benefit from receiving this communication? If so, call our office at 507-835-9111 to provide us with their contact information and we will be happy to send them a copy.

Footnotes, disclosures and sources:

Securities, advisory services, and insurance products are offered through Investment Centers of America, Inc. (ICA)®, member FINRA, SIPC, a Registered Investment Advisor, and affiliated insurance agencies. ICA and iWealth are separate companies.

Neither Brad Connors nor Investment Centers of America provides tax or legal advice; consult your tax or legal advisor regarding your particular situation.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative or named Broker dealer, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

The information contained in this material is being provided for general education purposes and is not intended to be used or interpreted as specific legal, tax or investment advice. It does not address or account for your individual investor circumstances. Investment decisions should always be made based on your specific financial needs and objectives, goals, time horizon and risk tolerance. Consult your tax advisor or attorney regarding tax issues specific to your circumstances.

Neither Investment Centers of America nor any of its employees or representatives are authorized to give legal or tax advice. You are encouraged to seek the guidance of your own personal legal or tax counsel.

The information in this document is provided by a third party and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. While the publisher has been diligent in attempting to provide accurate information, laws and regulations change frequently, and are subject to differing legal interpretations. Accordingly, neither the publisher nor any of its licensees or their distributees shall be liable for any loss or damage caused, or alleged to have been caused, by the use or reliance upon this service.