The Obligatory Year End Tax Tips

It is not exciting or fun for me to put out articles that are covered in excess, unless I have a crazy new spin on a common topic or can add value in some unique way. Unfortunately, I fear that this article will go against the grain in that regard, BUT it is something that could benefit many of you out there.

Below are a number of tax tips that you can still take advantage of before year end.

1. Top off your retirement accounts to the maximum allowed if you can afford to. These amounts are per person for tax year 2011. 
• 401(k) type plans - $16,500 ($22,000 if you are over 50)
• IRA and Roth IRA plans - $5,000 ($6,000 if you are over 50)
• Simple IRA - $11,500 ($14,000 if you are over 50)
• SEP IRA and Solo 401(k) - $49,000 ($54,500 for 401(k) if over 50)
2. Max out your HSA plan (if you have one) - $3,050 for individuals or $6,150 for families. Those over 55, but not yet enrolled in Medicare, can put in an additional $1,000. Contributions are counted as pre-tax, earnings are tax-free, and distributions for qualified medical expenses are also tax-free. 
3. Empty your flexible spending account, before the money is forfeited. HSA funds can be carried forward year to year, but flex-spending accounts cannot. Employers can dictate whether this deadline is December 31, or as late as March 15. Find out when your deadline is and make sure you don't forfeit your cash. 
4. Make the most of taxable stock gains. If you would like to make a donation to a non-profit this year, consider donating appreciated stock instead of cash. This allows you to give more to charity, take a larger deduction for it, and skip out on paying what would be a taxable gain on the stock.
5. Make the most of stock losses. You are allowed to sell out of losing positions to capture losses and carry them forward to use against future gains. In addition, you can deduct up to $3,000 against ordinary income in 2011. Just be cognizant of the wash-sale rule, and don't repurchase the same security within the next 30 days. 
6. Make a charitable donation directly from your IRA if you are over the age of 70.5. This year, you can gift up to $100,000, without recognizing any of the IRA distribution as income. To make it even better, this counts toward your required minimum distribution. If you do donate this way (directly from your IRA), you cannot also claim it as a deduction for charitable giving. This benefit is set to expire at the end of 2011, unless Congress extends it. 
7. Take advantage of the $5M gift and estate-tax exemption. These current limits are well above the norm. Just ten years ago, the limit was $675,000. While these higher limits are not scheduled to end this year, they have been discussed in possible cuts from Washington...and could be subject to tinkering in 2012. Bottom line, take advantage of now, if you can. 
8. Get into a Roth, no matter your income. Starting in 2010, income limits were removed from Roth IRA conversations. Roth IRAs allow you to avoid future taxes and eliminates the required distributions in typical IRAs (great for estate planning). While this can be a fantastic tool for some, make sure you are aware of the tax consequences before you pull the trigger. Taxes will be owed on any pre-tax money converted to the Roth. 

We will end with these eight tips, but many other specific tax planning tools can be used to ensure you don't pay more taxes than you are required to. A trusted money manager and trusted accountant are both key to consistently maximize your funds and minimize your tax bill. For those of you that have both the time and interest to make this happen yourself, more power to you. Hopefully you will find some useful tips here to get you started. Invest well!