With our complicated and ever-changing tax laws, you can't afford to ignore tax planning. The strategies discussed here may help you pay less in taxes. We'd be happy to assist you.

Explore education tax incentives

Tax-deferred retirement savings plan

Traditional/ Roth IRA's and their benefits

Make the most of deductions

Claim deductions and credits

Self employed health insurance deductions

Establish a retirement plan

Tax Creditss

This Publication is intended to provide general information to our clients and friends. It does not constitute legal advice, nor is it intended to convey a thorough treatment of the subject matter. Every person's situation is unique please talk with us.

New Tax Legislation

On December 17, 2010, the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act). The 2010 Tax Relief Act extends for two years the Bush-era tax cuts, retains for two years favorable tax rates for long-term capital gains and qualified dividends, provides significant estate and tax relief, and includes a two-year AMT “patch”. It also contains new tax breaks, including 100% first-year writeoffs of qualifying property placed in service after September 2, 2010 and before January 1, 2012, and a payroll/self-employment tax of two percentage points for 2011 for employees and self-employed individuals. Plus it extends a host of expired and expiring tax breaks for business and individuals as well as a number of key disaster relief provisions.

The 2010 Tax Relief Act provides a two-year respite for valuable tax breaks that would have been eliminated after 2010 by sunset rules in EGTRRA, JGTRRA and ARRA. These include a favorable tax rate structure, marriage penalty relief, favorable tax rates for long-term capital gains and qualified dividends, and liberal education-related tax breaks and credits. It also explains the Act’s new two-year “patch” for the alternate minimum tax (AMT).

Reduced Tax Rates Extended for Two Years
Withholding and Other Tax Rates Stay Unchanged
Increased Standard Deduction Amounts Extended for Two Years
No 3%/80% Limitation on Itemized Deductions for 2011 and 2012
No Phase-Out of Personal Exemptions for 2011 and 2012
Reduced Capital Gains and Qualified Dividends Rate Extended for Two Years
Expanded Child Tax Credit Extended for Two Years
Expanded Earned Income Tax Credit Extended
Extended Adoption Credit and Employer-Provided Adoption Assistance Extended One Year
Expanded Employer-Provided Child Care Tax Credit Extended Through 2012
Expanded Dependent Care Tax Credit Extended Two Years
Numerous Education Incentives Extended Two years
Boosted AMT Exemption Amounts for 2010 and 2011
Personal Nonrefundable Credits May Offset AMT and Regular Tax for 2010 and 2011<

Capital Losses

You can deduct capital losses to the extent of any realized capital gain on a dollar-for-dollar basis. Once you've offset all your capital gains, you can deduct capital losses against other taxable income up to a total of $3,000 per year ($1,500 for a married person filing separately). Any unused capital losses are carried forward for deduction in later tax years subject to the same limits.

To the extent possible, time investment gains and losses to avoid large capital loss carryovers that will take several years to deduct.

Save taxes by shifting income

You may give up to $13,000 (as adjusted for inflation) of cash or other property to each of any number of individuals annually without federal gift tax. Married couples that agree to "split" their gifts can give $26,000 per recipient annually.

Explore education tax incentives

We all know that financing an education can be expensive. You'll want to consider all available tax incentives to help defray some of the cost.

Section 529 Plans - A prepaid tuition plan or college savings account described in Section 529 of the tax code is one possibility. While contributions to a Section 529 plan are not deductible on your federal return, benefits or distributions used for qualified higher education expenses are generally tax-free. The tax-free feature makes investing in a 529 plan attractive compared to investing in a comparable taxable account. There may be a state tax benefit in some states as well. Connecticut has enacted a state tax benefit.

There are tax benefits for college education expenses in 2011 and 2012

	The Tuition and Fees Deduction
	The American Opportunity Credit
	The Lifetime Learning Credit

The Tuition and Fees Deduction reduces taxable income

The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying education expenses. Forty percent of the credit (up to $1,000 maximum) is refundable.

The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or your dependents are enrolled at an eligible educational institution. You need not be enrolled at least half-time; even if you took only one class, you may take advantage of the Lifetime Learning Credit.

Credits may be limited or phased out based on income. Also no education tax break is allowed for taxpayers who are married but filing separately.

Let us work with you on the particulars of your individual situation regarding these credits.

Tax-deferred retirement savings plan

An employer's 401(k) or other tax-deferred savings plan (e.g. a 403(b) or SIMPLE plan) may offer you a convenient way to save toward your retirement. You don't pay taxes immediately on the salary you defer to your plan account. Income taxes aren't due until you receive distributions from the plan. Your account's investment earnings — interest, dividends, and capital gains — also are tax deferred. With no taxes taken out, your savings have a chance to grow and compound much faster.

If you are eligible, contribute to your employer's tax-deferred savings plan - especially if your employer matches part of your contribution. You can reduce current incomes taxes while helping to provide the financial security you'll need during retirement. For example, Kris contributes $5,000 of her salary to her employer's 401(k) plan this year. Since she's in a 30% tax bracket, contributing to the plan reduces her income taxes by $1,500. Any earnings on her 401(k) plan investments also are tax deferred.

	2011	2012
401(k) dollar limit	$16,500	$16,500
403(b) dollar limit	$16,500	$16,500
457 dollar limit	$16,500	$16,500
Catch-up limit	$5,500	$5,500
Defined benefit limit	$245,000
Defined contribution limit	$55,000
Compensation limit	$245,000
Social Security withholding:
(OADI Wage Base)	$106,800	$106,800
(OASDI Rate)	4.20%	4.20%
(Medicare Wage Base)	Unlimited	Unlimited
(Medicare Rate)	1.45%	1.45%

The IRS doesn't allow you to avoid paying taxes on 401(k)s, traditional IRAs, or other tax-deferred plans forever. You'll generally have to withdraw minimum amounts — called "required minimum distributions" or RMDs each year after you reach age 70½. The IRS has simplified the rules for computing annual RMD amounts. Usually, you can compute your RMD using a uniform table based on your age.

Traditional/Roth IRA's and their benefits

Individuals who earn at least $5,000 in compensation may contribute up to $5,000 total to one or more IRAs. Married couples may contribute as much as $10,000 ($5,000 for each spouse), even if one spouse does not work, as long as the joint compensation is at least as much as the contributed amount. An additional $1000 catch-up contribution is allowed to individuals who have reached age 50.

Traditional IRAs - Contributions to traditional (non-Roth) IRAs may be tax deductible. You may deduct your entire allowable contribution — no matter how high your income is — if neither you nor your spouse is eligible to participate in an employer-sponsored retirement plan. When one or both spouses are eligible for plan participation, deductions for contributions to traditional IRAs may be limited or eliminated when AGI exceeds specific levels.
Roth IRAs - A Roth IRA is a nondeductible IRA in which account earnings are potentially tax-free, rather than tax deferred. Tax-free distributions of Roth IRA earnings are available after a five-year waiting period when:

	The account owner is at least age 59½
	The money is used for first-time home buying expenses up to $10,000
	The account owner becomes disabled or dies
	Eligibility to contribute is phased out as AGI rises.

Income limits do apply to Roth IRA contributions for 2010 but not to Roth IRA conversions done in 2010.

For Roth IRA conversions in 2010, any amount required to be included in gross income due to the conversion can be included ratably over tax years 2011 and 2012, unless the taxpayer elects to pay the tax on the conversion in 2010.

If you have not contributed the maximum amount to your IRA for 2010, you still have until April 18, 2011 to do so.

Beneficiaries of IRAs - Beneficiaries of IRAs (or qualified plans) are well advised to get expert tax advice before taking action on their inheritance. This is particularly true for spousal beneficiaries who have more tax saving choices and more potential pitfalls than other beneficiaries.

Make the most of deductions

If you are a K-12 teacher, principal, counselor, or aide, you can deduct up to $250 of your eligible out-of-pocket expenses for classroom materials and supplies in computing AGI. Thus, you don't need to itemize to claim the deduction. There is a 900-hour minimum work requirement and you should save your receipts.

Claim deductions and credits

Reviewing deduction and credit opportunities may reveal ways to cut taxes on your business income. Following are a few strategies to consider:

As much as $250,000 of the cost eligible property placed in service in your business may be eligible for first-year expensing under Section 179 of the tax code.

Business Automobiles - If you use your personal automobile for business purposes you may deduct your expenses.

There are two basic ways to approach the deduction: (1) claim your actual expenses for the business-related portion of fuel, repairs, insurance, etc., or (2) calculate your deduction using the standard mileage rate. For 2010 the business standard mileage rate is 50.0¢ a mile and for 2011 the business standard milage rate is 51¢ a mile.

Self employed health insurance deductions

After years of being limited to a partial deduction, individuals who are self employed may now deduct 100% of health insurance expenses paid for themselves and their families. Certain requirements apply.

Establish a retirement plan

A corporation with significant profits that already pays its owner-employees well should consider starting a profit-sharing plan. Contributions to the plan would reduce corporate taxes and pass corporate income to participating employees (including the owners) on a tax-favored basis. A profit-sharing plan can have a 401(k) salary deferral feature if desired.