8 Year-End Tax Moves to Consider at the End of 2011

Before you know it, 2011 will be in the past and tax season will be upon us. Because it will be here sooner than you know it, now is a good time to look at what you’ll need to accomplish for your 2011 taxes before the end of the year.

Here is a to-do list of moves that you will want to consider making now in order to ensure that you don’t miss out on any tax advantages for your 2011 tax return:

1. Do a Quick Tax Tally

First, take a quick tally to estimate how much you will owe at the end of this year. Do you think you are going to owe the IRS money, do you think that you’ll be entitled to a refund, or are you borderline? If you think that you may owe tax dollars for 2011, you’ll want to take a closer look at what you can do now to increase your tax credits and tax deductions. Even if you anticipate that you will be receiving a refund, you’ll still want to do everything possible to maximize the amount of that refund.

2. Consider Prepaying for Certain Expenses

Prepaying some items can help lower your tax bill in the current year. Some items require an itemized tax return in order to claim, which many people do not do because they are better off taking the standard deduction than itemizing. You can also receive credit for paying any property tax bills that are due in early 2012 early. Note that this method requires you to file an itemized tax return.

First, if you qualify for a college tuition deduction and have not yet met the maximum amount allowed for 2011, you should consider paying your tuition bill for next year early. If your tuition is due at some point between January and March of 2012, you can pre-pay now and be able to take your tuition tax deduction on your 2011 tax return. The great thing about this deduction is that you do not need to itemize your return in order to claim this. If you qualify for the tuition and fees deduction, it is also possible that you may qualify for the Lifetime Learning Tax Credit or the American Opportunity Tax Credit. If you qualify for either of these, it is a good idea to take the time to determine which tax break will give you the largest tax benefit.

Next, if you plan to write off mortgage interest paid during 2011, you may want to consider paying your January mortgage payment early. If you pay by December 31st, you can include the interest paid in that payment for your 2011 tax return. You can also pre-pay any local and state property or income taxes that are due early in 2012 and take credit for them on your 2011 tax return.

Caution: Prepayment of expenses could possibly lead to a higher tax amount in the following years. Typically this is only beneficial if you expect to be in the same – or a lower – tax bracket the following year. If you plan on being in a higher tax bracket, the overall tax amount paid over the 2-3 year period will likely be greater. Sometimes it can be justified if you are planning on paying down debt and the money saved on interest payments is greater than the additional taxes you would pay or you plan on investing the additional cash in assets that will generate an income greater than the additional amount in taxes you would pay.

3. Max Out Your Retirement Account Contributions

If you have not yet maxed out your retirement account contributions for the year, you will want to do whatever you can to increase your account deposit amounts, especially those that will help lower your tax liability for the year. The maximum amount you are allowed to contribute to your IRA accounts in 2011 is $5,000 if you are under age 50 and $6,000 if you are 50 or over. 401(k) and 403(b) accounts allow for $16,500 if you are under 50 and $22,000 if you are over age 50.

4. Charitable Contributions

If you’ve been considering making a donation to charity, be sure to do so before the end of this year in order for the gift to qualify as a deduction on your 2011 return. Also, make sure that your contribution is made to an eligible charity and that you receive proper documentation for tax purposes.

Note: You must itemize your tax return in order to claim any contributions made to charity

5. Energy-Saving Tax Credits

If you’ve been putting off performing a home upgrade that qualifies for an energy tax credit, don’t wait any longer. You’ll need to complete your qualifying installation before the year comes to a close if you want to be able to take the credit on your 2011 tax return. Credits are available for a number of items in 2011, including insulation, energy-saving windows, energy-saving heaters and more.

6. Medical Expenses

Are you close to being able to write off your out-of-pocket medical expenses for the year? If so, you may want to consider having any elective procedures done before year’s end if they are going to cost enough to push you over the threshold.

Note: You must itemize your tax return in order to claim medical expenses. Qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted. In other words, if you have an AGI of $100,000 and $20,000 in qualified medical expenses for 2011, then $12,500 can be deducted ($20,000 – $7,500).

7. Alternative Minimum Tax (AMT) Warning

The AMT was implemented back in 1969 to ensure that taxpayers weren’t exploiting so many tax deductions as to be able to pay little to no taxes. It is important to take this into account when doing your year-end tax planning for 2011. There are some instances where you will not receive the full benefit of certain tax deductions if you are to be hit with the AMT. If you plan on being aggressive with your tax deductions and credits, it is a good idea to talk with an experienced CPA who can help ensure you actually do end up receiving the maximum benefit.

8. Maintain Good Records

Because it is never too early to begin planning for tax season, you have the best chance of minimizing your tax liability – or maximizing your tax refund – if you implement a tax preparation system now. It is crucial to hang on to receipts, financial records and any other important documentation that you may need as evidence that you qualify for certain tax deductions and credits. Taking the time to organize your records now will not only save you a headache at tax time, but may also save you a great deal of money.

This guest post was provided by Matt Robinson, whose website provides detailed guides to help taxpayers resolve various tax problems including tips on tax abatement, tax levies, wage garnishment, IRS payment plans and more. His website, TaxDebtHelp.com, also features a tax help blog that provides taxpayers with advice on how to reduce tax liability, and news about recent tax changes that may affect them.

Read more about guest posting for Faith and Finance here.