December 15, 2011Welcome
Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.
Newsletter contents:
Important Deadlines
Tax Planning Equals Tax Savings
Financial Tips to Wrap Up 2011
December 31, 2011
Tax Planning Equals Tax Savings
Kevin Shaw, CPA, PFS, CEO
Recently, a situation arose on the importance of proper tax planning that prompted me to write this article. Your circumstances may have changed from prior years. For instance, you may have retired and now, your income is primarily generated from social security, interest and dividends, and some retirement plan distributions.
In this example, your tax burden could be zero and many CPAs might have stopped at that point. Job well done! However, significant future tax savings would have been missed if we don’t dig further. Knowing your financial situation and knowing your investment portfolio, I could inform you that under the tax rules of 2011, you could actually sell some of your investments and generate additional capital gains without paying any additional federal tax. This tax strategy has the potential of saving you significant amounts in future capital gains tax!
As you can see, proper planning can have a significant tax impact. If you wait until after December 31st, we would not have been able to implement this strategy. Not everyone will have significant tax savings with end of the year tax planning, but if your circumstances have changed (lost a job, took a new job, business income is up or down significantly, kids going to college, etc.) it is a good idea to contact your tax advisor to discuss these matters.
Here is a quick list of potential tax saving strategies:
1. Bunch your medical expenses into every other year. Since these are limited to 7.5% of AGI, bunching can create more tax deductions.
2. Know your marginal tax bracket. If your income can be volatile, knowing when to take an expense or recognize income could have an impact up to a 10% or more.
3. In a normal situation the rule of thumb is to accelerate expenses and defer income. So, for instance, pay your mortgage early or make that charitable contribution. However, before doing so, make sure your circumstances are not changing dramatically in the next year. If so, this could reverse the rule of thumb.
4. If you own a small business, consider furniture and equipment needs before the end of the year.
5. There are many other strategies to consider. Please contact us if you have any questions.
Financial Tips to Wrap Up 2011
Dave Palm, Financial Advisor
With the holidays squarely upon us you are probably finding yourself juggling family events, work parties and kids concerts. Here is a list of items you want to make sure you add to your “To Do” list and complete before December 31, 2011.
Fund your Work Sponsored Retirement Plan
If you have a SIMPLE IRA, 401(K), 403(B) or 457 retirement plan through your employer, contributions must be received by December 31, 2011 in order for contributions to be counted for the 2011 tax year. If you are over age 50, you may be eligible to make and additional “Catch-Up” Contribution.
2011 Retirement Plan Contribution Limits
| Employee Contribution | Additional “Catch-Up” Contribution, if over age 50 | |
| SIMPLE IRA | $11,500 | $2,500 |
| 401(K), 403(B), 457 | $16,500 | $5,500 |
Fund your 529 College Savings Plan
If you have a family member that you are currently paying college tuition for or a future college scholar, you should consider funding your 529 College Savings Plan. In the State of Colorado you may be eligible for state income tax deduction for certain Colorado 529 plans. In order for it to count for 2011 it needs to be received by December 31, 2011. The benefits and deductions vary from state to state. A good resource to check is www.savingforcollege.com.
Use your Flex Savings account
You are able to contribute to most Flexible Savings Accounts throughout the year on a tax deferred basis, however one stipulation is that you need to use all of the funds by the end of the year or else you lose them. Try to get that last check up or eye doctor’s appointment scheduled by the end of the year.
“Give it Away” – Utilize Generous Gift Tax Exemptions
If you have a sizable estate, this is a good time to give some of it away. As current law states for 2011 and 2012 you may be eligible to give up to $5 Million under the current gift tax exemption. Historically, this is the highest the gift tax exemption has been. Given the political climate that currently exists, we may not see as favorable conditions for the gift tax exemption in the future.
As always, if you have any questions about how this might specifically pertain to you. Please feel free to contact us and we would be happy to discuss in more detail.
As I wind down my employment at Shaw & Associates and transition into the world of retirement, I am experiencing MIXED emotions. I have had the privilege of meeting and getting to know many of you during the past few years, and it is with sadness that I say good-bye to you. Thank you for enhancing my life, and I wish you much happiness.
Pinky Glick