Resources

• Articles
• Legislative Updates
• Economic Recovery Services
• Newsletters
• Payroll Tax Guidelines

 

The 12 Tax Saving and Tax Planning Tips for the Holiday Season

1. Maximize 100% depreciation deductions
2. Expense up to $500,000 of new/used equipment
3. Take advantage of certain tax credits
4. Maximize your itemized deductions
5. Maximize 401(k) and IRA contributions
6. Utilize your annual gift exclusion
7. Contribute your Required Minimum Distribution (RMD) to Charity
   
8. Monitor your HSA/FSA accounts
9. Acquire qualified small business stock to obtain future tax benefits
10. Escape built-in gains tax on certain property
11. Use year-end bonuses to adjust your 2011 withholdings
12. Prepare now for Act 32

---

 

1. Maximize 100% depreciation deductions:

• The bonus depreciation deduction, for original use property, remains at 100 percent of the adjusted basis of such property through the end of 2011.  Beginning on January 1, 2012, the allowance will be reduced to 50 percent.  Along with meeting the definition of qualified property, and other specific provisions, the qualified property must be placed in service before January 1, 2012 to ensure a 100% bonus depreciation allowance.

2. Expense up to $500,000 of new/used equipment:

• The amount allowed to be expensed under the Section 179 election remains at $500,000 through the end of 2011; subject to an investment limitation of $2,000,000. Beginning on January 1, 2012, the expense and investment limitation amounts are reduced to $125,000 and $500,000, respectively.  Section 179 generally applies to tangible personal property acquired by purchase for an active trade or business.  Taxpayers with a calendar year-end, the property must be placed in service before January 1, 2012 to ensure utilization of the $500,000 expense amount.  Taxpayers with a fiscal year-end other than December 31 must consider other rules regarding the "placed in service" date and should consult with their tax advisor regarding these rules.

3. Take advantage of certain tax credits 

• Energy efficient tax credits – if you are a homeowner, consider making energy-saving improvements to your residence, such as putting in extra insulation, installing energy-saving windows or an energy-efficient heater or air conditioner.   This credit expires on December 31, 2011 and the improvements must be made to your principal residence.  
• The HIRE Retention Credit - if you hired an employee under the HIRE act in 2010 and they were employed for 52 consecutive weeks; your business may be entitled to a credit.   The credit is equal to the lesser of $1,000 or 6.2% of wages paid to the employee.
• Returning Heroes Tax Credit and Wounded Warrior Tax Credit (extension of Work Opportunity Tax Credit) – On November 21, 2011, this new tax incentive was enacted into law for employers to obtain between $2,400 to $9,600 of tax credits for hiring veterans who have received at least four weeks of unemployment benefits in the year prior to their hire, disabled veterans who have been discharged or released from active duty in the year prior to their hire, and veterans and disabled veterans who received at least six months of unemployment benefits in the year prior to their hire.  

 4. Maximize your itemized deductions:

• Charitable contributions - Contribute to your favorite charity by December 31st and claim the gift amount as an itemized deduction on your 2011 tax return.   The gifts may be cash, goods, or appreciated securities.   Be sure to obtain a receipt from each charity as documentation of each gift.   
• Bunching deductions - If your itemized deductions are subject to the 2% adjusted gross income limitation, you may want to consider "bunching".   This technique is effective if you are able to accumulate deductions so that they are high in one year and low in the next because the total amount to report by bunching in one year may be enough to exceed the 2% limitation.

5. Maximize 401(k) and IRA contributions

• You still have time to maximize your contributions to your 401(k)s and 403(b)s for the current year.  All employees can generally contribute $16,500, and if you are 50 or older you can contribute an additional $5,500.  Be sure to hurry though, because December 31st is the cutoff date for 2011 tax year contributions.
• Taxpayers with earned income can also contribute to a deductible or non-deductible IRA.  The contribution limit for 2011 is $5,000, and if you are 50 or older you can contribute an additional $1,000.  The best part about contributing to an IRA is the money does not have to be transferred until April 16, 2012.  Just be sure to tell your broker that the contribution is for the 2011 tax year.
• If you have a traditional IRA you can convert your traditional IRA to a Roth IRA.  You will have to pay taxes on the value of the converted amount, but after you convert, the Roth IRA grows tax-free and the distributions from the account are also tax-free as long as you meet the guidelines.  If for some reason your Roth IRA diminishes in value, you can recharacterize the account back to a traditional IRA and pay no taxes.  You have up to the filing deadline (including extensions) to recharacterize.

6. Utilize your annual gift exclusion

• You can gift up to $13,000 to any person in 2011 and not be subject to gift tax.  If you are married, both you and your spouse can gift a person $13,000 for a total of $26,000.  Just be sure to remember that the $13,000 limit applies to all gifts that you give that person during the year including; birthday, graduation, wedding, 529 plan contributions, stock, rights of withdrawal from an irrevocable trust, etc.

7. Contribute your Required Minimum Distribution (RMD) to Charity

• If you are over 70 1/2 years old and you have not taken your RMD from your IRA for the year, consider gifting your RMD to your favorite charity.  Any RMD, up to $100,000, that is transferred directly from your IRA to a charity will not be reported as ordinary income on your 2011 tax return.  Since you will not report this income on your 2011 tax return, you also will not be able to claim a charitable deduction on Schedule A.  However, being able to exclude the income from your adjusted gross income lowers the floor for deducting medical expenses and miscellaneous deductions.

8. Monitor your HSA/FSA accounts

• Taxpayers who are enrolled in a high deductible health plan can contribute to a Health Savings Account (HSA).  Contributions to an HSA are excluded from the taxpayer's income and the contributions grow tax-free.  The contribution limit for 2011 (including any employer contribution) is $3,050 for self-only coverage and $6,150 for family coverage, and if you are 55 or older you can contribute an additional $1,000.  You can maximize your contribution to your HSA up to the filing deadline of your return, which for 2011 is April 16, 2012.  Distributions from an HSA are not required and any distribution is tax-free so long as the money is used for qualified medical expenses for the account beneficiary or the beneficiary's spouse or dependents.
• Employees who are enrolled in a Flexible Spending Account (FSA) receive tax-free reimbursements for health care or dependent care expenses.  Contributions to an FSA can only be made by an employer or by an employee's salary reduction agreement.  Unlike an HSA, FSA contributions cannot be carried over to the next year and any unused balance in the FSA on December 31st is lost unless the employer provides a grace period that can run up to March 15, 2012.  If you still have any money in your FSA you might want to accelerate your upcoming medical expenses and pay for things such as medicines and prescription glasses or contacts by December 31st.  

9. Acquire qualified small business stock to obtain future tax benefits:

• The Creating Small Business Jobs Act of 2010 provided that for qualified small business stock acquired after September 27, 2010 and before January 1, 2012, the exclusion from gross income will be 100%.  Additionally, the Act provided that the AMT preference item will not apply to such qualified small business stock acquired during this period.  Generally, taxpayers may exclude, from gross income, 50 percent of any gain resulting from the sale or exchange of qualified small business stock which has been held for more than five years. 

10. Escape built-in gains tax on certain property:

• The Creating Small Business Jobs Act of 2010 provided that Built-in gains tax will not apply to built-in gains, recognized during 2011, of an S corporation if the corporation has had an S corporation election for more than five years.  Generally, S corporations are subject to tax on recognized built-in gains, during the recognition period.  Beginning on January 1, 2012, the recognition period will revert to ten years. 

11. Use year-end bonuses to adjust your 2011 withholdings:

• If you are expecting to owe federal or state income taxes in 2011, consider withholding an extra amount of tax from a year-end bonus or regular payroll to avoid underpayment penalties.   Likewise, if you are anticipating a tax refund, you may adjust your pay to withhold less federal tax.    The IRS website offers withholding calculators on their website.  

12. Prepare now for Act 32

• Employers must begin to withhold applicable local earned income taxes from their employee's wages on January 1, 2012.  Employers are required to obtain completed Residency Certification Forms from each employee to verify their residence location.  Under Act 32, the withholding amount is the higher of the earned income tax rate where the employee resides or the non-resident earned income tax rate where the employee is employed.
  • Example: - Jane resides in Municipality A which has a 1.3% earned income tax rate and is employed in the City of Pittsburgh which has a non-resident earned income tax rate of 1%. The employer must withhold the higher rate of 1.3%.