Year End Tax Planning – Summary from Client Webinar on 10/18/11 (Archived Blog)

Year End Tax Planning

Year end is fast approaching.  Before you know it, we’ll be hearing Auld Lang Syne and raising a glass to toast the New Year.  At the stoke of mid-night you’ll be able to rest assured you’ve made the most of the year, from a financial planning perspective, if you take a few minutes to do our simple suggestions and review the list of year-end planning opportunities, below.

Our simple suggestions start with get an idea of what your taxable income will be for 2011.  The easiest way to do this is to look at your most recent tax return, likely your 2010 return, and see what your taxable income was (line 43 on page 2 of your form 1040) and what marginal tax bracket you were in, see chart: 



Tax Rate 2011

Single Filers

MFJ or Qualifying Widow (er)

Married filing Separately

Head of Household



Up to: $8,500

Up to: $17,000

Up to: $8,500

Up to: $12,150






















Over 379,150

Over 379,150

Over 189,575

Over 379,150



Next, determine if your income will change much for 2011? Did you have any major changes such as a job change, a promotion or pay-cut?  Did you exercise any stock options?  Have you increased or decreased contributions to your retirement plan (eg: 401k, 457, etc.).  Next, consider your deductions, any changes there?  For example, do you have an adjustable rate mortgage? If yes, did your rate change in 2011 effecting your mortgage interest deduction? 

The last piece of this simple suggestion is to see if you are on track for paying your tax bill.  In order to avoid paying an underpayment penalty you will need to have either paid 90% of what you owe or 110% of the prior year’s income tax (line 46 on the form 1040).

Now that you have a handle this is where the fun begins (ok, admittedly it’s “nerdy” fun but hey, it’s the perspective of the author).  Once you’ve guestimated your marginal tax bracket, and know where you stand on tax payments, we can look to see if you any planning opportunities lye before you, such as:

  • Exercising stock options
  • Full, or more likely a partial, Roth conversion
  • Increase contributions to a retirement account
  • Maybe you are better off to bunch deductions, such as property tax payments or medical expense
  • Looking to do any home improvement projects? Credit for Energy-Saving Home Improvements The 30% tax credit of the cost of energy-saving home improvements was extended by the Tax Relief Act of 2010 through 2011. (for more details see IRS form 5695)


  • Are you eligible to contribute to a Health Savings Account and if so, have you contributed the maximum allowable?


Health Savings Account 

Annual LimitMaximum deductible contributionExpense limits (decuctibles & co-pays)Minimum annual deductible

Individuals $      3,050 $            5,950 $       1,200

Families $      6,150 $          11,900 $       2,400

Catch-up for 55 and older $      1,000  


  • Do you have a child in college?  If so you’ll want to be aware of the following credits and eligibility requirements:


Education Deduction & Credits

Credit/Deduction/Account Maximum credit/deduction  Income phaseouts begin at AGI of: 

American Opportunity Tax Credit $2,500  credit  $160,000 joint 80,000 all others 

Lifetime learning credit $2,000  credit  $102,000 joint 51,000 all others 

Savings bond interest tax-free if use for education Deduction - limited to amount of qualified expenses  $106,650joint 71,100 all others 

Coverdell$2,000 maximum contribution: not deductible $190,000 joint 95,000 all others 


  • If you have long-term care insurance you may be able to deduct a portion of the premiums you pay:


Deductibility of Long-Term Care Premiums on Qualified Policies

Attained age before close of tax year Amount of LTC premiums that qualify as medical expenses in 2011 

40 or less $340

41 to 50 $640

51 to 60 $1,270

61 to 70 $2,290

over 70 $4,240


If you will be receiving Medicare benefits you’ll need to be aware of this chart:


Medicare Premiums for High-Income Taxpayers

MAGI SingleMAGI JointPart B PremiumPart D income adjustment

$85,000 or less $170,000 or less  $          115.40 $    -  

 85,001 - 107,000 170,001 - 214,000  $          161.50 $12.00

107,001 - 160,000 214,001 - 320,000  $          230.70 $31.10

160,000 - 214,000 320,001 - 428,000  $          299.90 $50.10

Above 214,000 Above 428,000  $          369.10 $69.10


On a final note, we need to talk about tax law.  Last year congress extended the “Bush Tax Cuts” and kept our lower tax rates intact through 2012.  At present, when the those cuts expire (2013), absent any new legislation, tax rates will revert to 2001 levels:


Tax RateSingle FilersMarried Filing Jointly or Qualifying Widow(er)Married Filing SeperatelyHead of Household

15%up to $27,050Up to $45,200Up to $22,000Up to $36,250

27.5%$27,051 - $65,550$45,201 - $109,250$22,601 - $54,625$36,251 - $93,650

30.5%$65,551 - $136,750$109,251 - $166,500$54,626 - $83,250$93,651 - $151,650

35.5%$136,751 - $297,350$166,501 - $297,350$83,251 - $148,675$151,651 - $297,350

39.1%$297,351 or more$297,351 or more$148,676 or more$297,351 or more


Many of the planning opportunities are tied to managing your income.  In some cases accelerating your income (for example doing a Roth conversion or exercising stock options) makes sense.  In other cases lowering your income (increasing retirement plan contributions) makes sense.  In either case, looking ahead, projecting your income and ensuring you are on track with tax payments pays off.  If you have questions or have spotted any opportunities we can help you with, please contact us today.

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