As 2012 draws near, there are still several ways to minimize your tax bill for 2011. The current $5 million lifetime gift-tax exclusion is on the line of extinction to balance the government deficit. Thus, if you have a high net worth, it may be advisable to establish estate plans sooner rather than later to ensure that any transfer of property involves minimal tax debt.
Maximizing tax breaks can help relieve many individuals and businesses from financial burden come April. If an individual can pay next year’s property-tax bill in December or push their income into the following year, their current-year taxes would decrease significantly. Additionally, a business owner should take inventory of expected purchases for the first few months of 2012. The owner can prepay for these purchases in December and maximize their deductions in April. Furthermore, a business or individual should capitalize on using a Roth IRA if he/she has assets allocated to future heirs. A Roth IRA can provide tax-free income in the future, however you must pay the typical income tax when converting assets.
After December 31, 2011 a tax incentive that lets people age 70 ½ or older donate from their IRA to a charity will no longer be available unless Congress extends it. Taxpayers can contribute up to $100,000 to a given charity without acknowledging it as income. However, the contribution to the charity is not tax deductible. Regardless of whether you have an IRA, donating to a charity is not only a good gesture but it will help you increase the value of your deductions.
Some other deductions that may end this year include environmentally conscious home improvements (energy efficiency). You may be able to receive up to $500 in tax credit. In addition, teachers can deduct up to $250 for out-of-pocket costs related to school supplies. Again, these deductions may end in the beginning of 2012, so capitalize on your savings now before it is too late.