It's not too late to cut
your 2011 tax bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $16,500 into
your 401(k) or 403(b) plan. Anyone 50 or older by December 31st
can put away an additional $5,500. Contributing to a 401(k) or
403(b) plan at work is one of the best tax shelters available to you
during your working years.
If you’re self-employed, consider setting up a Solo 401(k)
by 12/31. A Solo 401(k) plan lets a self-employed person hit the
$49k retirement plan max with less income than a SEP IRA, and also
allows a person aged 50 or older to put away $54.5k into a retirement
plan for 2011.
Take a look at your
withholdings and instruct your employer to withhold additional taxes
if you haven’t had enough taxes withheld during the year to avoid
getting hit with an underpayment penalty.
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can
then be used to offset up to $3,000 of wages and other income.
Make sure to wait at least 31 days before buying back a security sold at
a loss, or the IRS will disallow the loss under the "wash sale" rules.
Consider selling your
investments that have increased in value if you are in the lowest tax
since the capital gains rate for you will be 0%, and this rule is slated
to expire on 12/31/12. You can then buy back those
securities, and the "cost-basis" will be the higher amount. This
strategy will save you taxes down the road when you sell these
securities. Just make sure that the capital gains don't push you
out of the 15% tax bracket, or you'll be taxed on those gains that fall
outside that bracket.
Send in your January 2012 mortgage payment early enough so it will be processed prior to
12/31/11. By sending in your payment a few weeks early, you can
deduct the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable
since "non-cash" contributions are deductible if you itemize.
Don’t forget to get a receipt. And you should make a
list of each
item donated, along with its condition. Remember, only donations
of clothing and household items in "good condition or better" qualify
for a deduction. (To track what you donate, download our
Non-Cash Contribution Worksheet -
Excel Version or the
version, or use the
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2012. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation.
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and not
subject to the alternative minimum tax.
Pre-pay and pay off
your medical bills if your total medical expenses exceed 7.5% of
your income and you itemize.
Evaluate whether you'll
save any taxes by postponing 2011 income or deductions into 2012 or
by accelerating 2012 income or deductions into 2011.
Got questions about year-end tax planning? If so, please
contact the closest
When you sell securities such
as stocks, bonds, or mutual funds held in a taxable account, you report
the net proceeds you received on a
attached to your federal tax return,
and then also report the date you purchased that security and the amount you
paid for it. By doing so, you correctly calculate your
short-term and long-term capital gains or losses. Remember, long-term
transactions are those securities that are held for more than a year before
being sold and qualify for a reduced federal tax rate.
Through 2010, financial
institutions were only required to report the sale side of the transactions to
you and to the IRS on the Form 1099-B. In other words, they only reported
the date of the sale and the net proceeds received. It was up to the
taxpayer (many times with the help of a paid tax preparer) to determine the "cost-basis" and
holding period of the securities that were sold.
Starting in 2011, all that
changes. Check out the newly revised
For securities purchased in 2011, financial institutions must now report Cost or
Other Basis in Box 3 and then check off Short-term or Long-term in Box 8.
Please note that this change only applies to securities purchased as of 2011, so
you still need to keep records for your stock, bonds, and mutual funds purchased
prior to this year.
Please be aware of a
change to the rules if you sell mutual funds within a taxable account. The
financial institution will report your cost-basis to you and to the IRS using the Average Cost
Method unless you notify the financial institution prior to the sale that
you have opted to use either Specific Share Identification or First-in First-Out
Here are the rules from IRS
You can figure
your gain or loss using a cost basis only if you did not previously use an
average basis for a sale, exchange, or redemption of other shares in the same
mutual fund. To figure cost basis, you can choose one of the following methods.
Specific share identification.
If you adequately
identify the shares you sold, you can use the adjusted basis of those particular
shares to figure your gain or loss. You will adequately identify your mutual
fund shares, even if you bought the shares in different lots at various prices
and times, if you:
Specify to your broker or other agent the particular shares to be sold
or transferred at the time of the sale or transfer, and
Receive confirmation in writing from your broker or other agent within a
reasonable time of your specification of the particular shares sold or
You continue to
have the burden of proving your basis in the specified shares at the time of
sale or transfer.
First-in first-out (FIFO).
If your shares were acquired at different times or at different prices and
you cannot identify which shares you sold, use the basis of the shares you
acquired first as the basis of the shares sold. In other words, the oldest
shares you own are considered sold first. You should keep a separate record of
each purchase and any dispositions of the shares until all shares purchased at
the same time have been disposed of completely.
Time Will Tell
It will be interesting to see how well
these new rules will work to help people correctly and easily calculate their
capital gains and losses.
Wouldn’t it be great if you were able to go to a
college or university website, enter your
financial data into a secure calculator and get
the real annual cost to you if your son or
daughter were admitted to that school?
The new Net Price Calculators (NPC) are
supposed to provide that option.
October 29th was the date when all colleges in
the United States were required to post
calculators on their web sites that provide this
type of cost transparency to prospective
applicants and their families.
jury is out on just how effective and accurate
these calculators will be, and our research to
date justifies those who have expressed serious
doubts about this initiative.
Higher Education Act 2008 – Feds To The Rescue?
The objective is valid. The current outcome
The goal of the NPC provision was to
help families determine how much they will
really have to pay.
Under the new system, prospective applicants
will now be able to enter financial (and in
some cases, academic) data into the NPC on a
The intent was to provide a method for
consumers to get a cost estimate from a
college before an application for admission
The U.S. Department of Education developed a
basic NPC template. Other companies also
offer NPCs that add more flexibility for the
Consequently, consumers are going to
find a lack of uniformity among the NPCs
they encounter and this will indeed create
Observations From Our Research Of Over 80 NPCs
Many families will not know whether or not a
college employs tuition revenue management
or “financial aid leveraging” wherein
students at the top of the admit pool
(academically) receive preferential aid
packages in order to influence enrollment
There are close to 1,000 colleges that
employ some form of this practice. No
single net price calculation will flag them.
Even if you know the college’s policy, you
will not know where you stand until you get
your award letter.
We conducted almost 200 calculations
using a variety of different NPCs and found
only two that truly incorporate the
student’s academic record.
was very concerning to us that
each of the calculators we used collected
different family data.
Plus, there is no uniform way that colleges
are required to display NPC results.
Colleges are permitted to use customized
approaches, but without a uniform method,
real comparisons among colleges are
difficult to make.
Finally, there will be serious confusion for
divorced and/or separated parents. Some
colleges will require financial data from
both biological parents to ultimately
determine a financial aid package, but we
have not yet seen an NPC that can “run the
numbers” for these situations.
Like MSRP, Net Cost Is Only Part Of The Story
uncertainty with regard to your standing in the
pool of admitted students extends to awards made
to meet financial need as well as merit
scholarships. While average merit awards are
embedded in the college’s average grant aid
figure, this is only marginally informative or
helpful for any individual applicant.
Merit scholarships may or may not be part of
college’s aid package (a policy issue) and for
some colleges any amount assumed is pure
speculation. The NPC’s we researched often
include a disclaimer in this regard and note
that it will be subject to the judgment of
Financial Aid Office or scholarship committee.
research of 80 institutions indicated that
net price varied by more than $10,000
for the same college depending on the EFC
(Expected Family Contribution). We also found
that variations among colleges for the
same EFC can also be in the tens of thousands of
you must enter data into the NPC for each school
under consideration using the instructions
provided on the respective websites. And, you
should run the NPC in subsequent years too.
This will account for changes in TCOA (Total
Cost Of Attendance), EFC formulae, family
finances and other important data.
Families should also be aware that timing is a
key issue. Colleges may change their financial
aid packages in the spring depending on the
applicant pool and the enrollment targets they
need in order to achieve net revenue goals.
The aid estimate generated by completing
an NPC in the high school senior year may differ
from the aid awarded in the spring even with no
change in financial data.
advise you to print the NPC results from each
college website in order to compare the results
to the award you actually get. This will
provide some potential leverage at decision
Establish Your Financial Comfort Zone
With all of these conditions in mind, when
assessing one or comparing a list of candidate
colleges it is up to each family to conduct an
“affordability review” that determines precisely
what you can comfortably handle for a net cost.
Remember, true net cost is TCOA minus
grants and scholarships (money you do
not need to repay).
For 2011, the standard deduction for a single individual is $5,800 and
for a married couple is $11,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2011, the personal exemption is $3,700.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2011, increasing to $110,100 for 2012.
The standard mileage rateis $.555 per business mile as of
July 1, 2011, up from $.51 per mile for the first six months of 2011.
The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2011, increasing to $17,000 in 2012. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2011. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2012 to make your 2011 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.