Year End Tax Planning Part 2 – Deductions

In the first part of this article we discussed tax planning for income. In this second part we consider some tax planning ideas for deductions.

Bear in mind that most of these planning ideas require you to spend some money before the year end so there is little time left to implement them before December 31, 2011.

Also, as we mentioned in the first part don’t let the tax tail wag the dog. In other words if a tax planning idea does not make commercial sense then being commercial should take priority over the tax planning. That becomes even more important when you are spending hard earned cash.

So, what can you do about your deductions that may save you tax?

Here are some ideas to consider:-

  • Advance Deductions– If you can pay for a deduction before December 31 that will bring the tax saving on that deduction in to the current tax year. However, you need to estimate what your marginal tax rate will be in the following tax year to see if this will be beneficial. If your marginal rate is 10% this year but will be 25% next year then it wouldn’t make sense to advance deductions in to the current year. Some deduction items that might be advanced include:-
    • Tution fees for the Spring semester
    • Pay real estate taxes in advance
    • Pay for business expenses faster than normal
    • Make extra 401K or IRA pension contributions
    • Do extra charity donations
    • Sell loss making investments to realize the loss

  • Expiring Tax Provisions– Unless Congress extends them, the following will be expiring on December 31, 2011:-
    • Teacher’s Education Expense deduction – Get your $250 deduction by paying for class room supplies before December, 31 2011
    • Student loan deduction – Pay for arrears of interest before December 31, 2011
    • State and local sales tax deduction – Consider making a big purchase like a car before December 31, 2011
    • 100% Bonus Depreciation – Buy and put in to use new capital business assets before December 31, 2011
    • Adoption Credit – This ceases to be refundable after December 31, 2011 so try and get the adoption finalized before then

These give you a flavor of what can be done as part of your year end tax planning. There are many more ideas to consider so speak soon to your tax advisor.

If you would like us to review your current tax position then please call us on (480) 363-4808, book an appointment on our home page or email us.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Posted By Mark Smith

Mark Smith, EA is an Enrolled Agent and accountant with over 30 years tax and accounting experience. He is the owner of Cranmere Accounting and Tax Services LLC. He can be contacted on (480) 363-4808 or by email at if you need assistance with any of the above.

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