Year-end tax planning

It is not too early to do year-end tax planning. Have you heard of the 3.8% unearned income medicare contribution on higher income individuals, estates and trusts, effective Jan 1, 2013? There is also an additional 0.9% Medicare Tax for higher income individuals. High income is 250K for MFJ, not that a high threshold in this valley. 2013 is the year with many tax changes! See the following link for details:

http://tax.cchgroup.com/downloads/files/PDFs/Legislation/2012yearend.pdf

Foreign Asset Reporting

Under the Foreign Account Tax Compliance Act, it is now required to report interests in specified foreign financial assets in 2012 for 2011 tax years. This requirement was suspended until the form 8938, statement of specified foreign financial assets, becomes available in December. 

Assets that must be disclosed are foreign bank and brokerage accounts, foreign pension assets and interest in foreign partnerships.

1. TDF 90-22.1 You can get it from http://www.irs.gov/pub/irs-pdf/f90221.pdf

Any United States citizen or permanent resident who has a financial interest in any financial account(s) located outside of the United States is required to file a Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. IRA account is excluded.

Mail the completed form separately from the income tax return to:

U.S. Dept. of the Treasury

P.O. Box 32621

Detroit, MI 48232-0621

The form must be received by June 30 of the year following the calendar year being reported. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. 

2. Form 8938, http://www.irs.gov/pub/irs-pdf/f8938.pdf

Reporting thresholds:

If you are married filing a joint income tax return and living in the US, you only need to file form 8938 If the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. This form is filed with the 2011 tax return. The reporting thresholds are different for taxpayers who live abroad. 

no itemized deduction phase out limit for 2011

The year 2011 is not over yet. You still have time to make your charitable donations for 2011. Especially because there is no limit on the itemized deduction amount in 2011. In other words, those with a high income will not have their itemized deductions reduced. For high income earners, if you want to make the charitable deduction count to reduce your tax, this is a good year to do it!

Deadlines for IRA and 401K

December 31, 2011 is the last day to make your 401K contribution that will count toward tax year 2011. Check if you have reached the maximum amount you can contribute to 401K, which is $16,500, or $22,000 if you are 50 or older.

April 1, 2012 is the last day to take the first required minimum distribution (RMD), if you turned age 70 1/2 in 2011. However, if you delay your first required distribution until April next year, you will then have to take two distributions in the same year because the second distribution will be due on December 31. Taking two distributions in the same year may bump you up into a higher tax bracket, resulting a large tax bill.

April 17, 2012 is the last day to fund your IRA for 2011 tax year. When you fund your IRA in 2012, please make sure you specify which tax year it is for. You can file your tax return claiming the IRA contribution for 2011 before the money is deposited.

Tax moves before the year end

Most of the tax moves mentioned in this article here, have already been posted in my blog or in my emails to my clients. I post the link below to serve as a good summary:
http://www.mint.com/blog/planning/6-tax-tips-to-make-before-december-31st-112011/

1. Check your paycheck 
2. Max out your retirement accounts 
3. Cut your losses
4. Check your health
5. Be charitable
6. Go green

Estate Planning - Estate and gift tax exclusion amounts

One of the most effective tax planning involves making gifts to your beneficiaries during your life. For 2011 and 2012, the annual gift tax exclusion is $13,000, with life time gift tax exclusion of $5 million. You may give up to $13,000 a year in cash or asset to anybody without any gift tax.

For example, you and your spouse give $26,000 this year to each of your children, you pay no gift tax because of the annual gift tax exclusion. Even if you give more than the exclusion amount to a single person this year, you might not owe any gift tax. For example, you and your spouse give $100,000 to help your child for a down payment to buy a house. You will have to file a gift tax return to keep track of the additional amount of $74,000 from the lifetime gift tax exclusion amount of $5 million, but pay no gift tax this year.

2011 Standard Mileage Rate changed

The standard mileage rate is a set rate per mile you can use to deduct your car expenses. This rate is different for different driving expenses. If your company reimbursed you for travel expense at a rate lower than what the IRS allows, you can still claim a deduction for the difference.

For 2011, the standard mileage rate for business travel is 51 cents a miles before July 1, 2011 and 55.5 cents per miles driven after June 30, 2011. See the table below for different rates.

For miles driven from 1/1/11 to 6/30/11:            
Business                                 51 cents                                                
Moving and medical                19 cents
Charity                                    14 cents
                                                               
For miles driven from 7/1/11 to 12/31/11:
Business travel                       55.5 cents
Moving and medical                23.5 cents
Charity                                    14   cents