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December 2011


by Andrew D. Schwartz, CPA

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 bracket 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 organization, 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 PDF version, or use the App UDoGood.)

  • 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 MDTAXES CPA.



by Andrew D. Schwartz, CPA

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 Schedule D 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 Form 1099-B.  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 (FIFO) method.

Here are the rules from IRS Publication 550:

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.

  • First-in first-out (FIFO).
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:

1. Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and

2. Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred.

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.



by Todd Fothergill and Tom McGrath

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.

The 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 is lacking.
  • 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 college website.
  • The intent was to provide a method for consumers to get a cost estimate from a college before an application for admission was made.
  • The U.S. Department of Education developed a basic NPC template. Other companies also offer NPCs that add more flexibility for the colleges.
  • Consequently, consumers are going to find a lack of uniformity among the NPCs they encounter and this will indeed create confusion.

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 decisions.
  • 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. 
  • It 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

The 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.  That’s comforting.

Our 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 dollars.

So 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.

We 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 time.

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 more information, visit College Search GamePLAN.




Income Taxes

Saving and Investing




  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and won't be hit by the AMT.
  • Keogh plans and Solo 401(k)'s must be established by 12/31
  • 529 Plans must be funded by 12/31 to take full advantage of this year's gift limit of $13,000.
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $16,500, ($22,000 if 50 or older).


2011 & 2012 TAX FACTS

  • 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 business expenses.
  • For 2011, the personal exemption is $3,700. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2011, increasing to $110,100 for 2012.
  • The standard mileage rate is $.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 contributions. 


You're Invited to Attend Our Complimentary Presentation on:

Tax and Basic Financial Planning Issues Applicable to Young Healthcare Professionals

Here is a list of cities where the presentation will be held:

Boston - 1/19/12


Need Help With Your Nanny Payroll?

This Month's Topics

Checklist to Cut Your 2011 Taxes

Newly Revised Form 1099-B Should Simplify Your Capital Gains Calculations

College Websites Must Now Include "Net Price Calculators"

The FICA Refund for Medical Residents 

2011 & 2012 Tax Facts

Tax and Financial Planning Calendar for December 2011


Browse our index of previous months' newsletter topics

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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.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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