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

Tax planning - should you pay both installments of property tax this year?

Paying the property tax for your home in advance can save you money on your tax bill for 2011. However, if you are subject to Alternative Minimum Tax (AMT) this year, paying extra property tax will not reduce your tax.

You may have to pay the AMT if your taxable income adjusted for AMT is higher than the AMT exemption amount. State and local income taxes and real estate tax are examples of the adjustments. The AMT exemption amount for 2011 is $48,450 for single and $74,450 for married filing jointly.

Questions on foreclosure or short sale

I used to get a lot of questions on foreclosure at the office. Oftentimes, the callers or clients were surprised to find out they may have a big income tax bill when they've lost their home or rental property. If you are interested in this subject, I'd like to point you to the following IRS article: http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Q) How is your situation different if you have refinanced your residence?

A) There is no taxable income from the cancellation of debt for the original mortgage. However, refinancing changed the loan from the original non-recourse loan (not personally liable) to a personally liable recourse loan, then you might have taxable income from the cancellation of debt.

Q) What are the tax consequences from foreclosure or short sale?

There are two tax consequences:

1) The cancellation of debt may be treated as ordinary income. 2) Since the foreclosure is treated as a sale, you might realize a gain or loss. It is possible for someone to lose their property in a foreclosure and end up having to pay capital gains tax. The capital gain amount are calculated differently based on the loan type.
                              

Q) Will filing for bankruptcy help?

A) Yes, if the debt is approved by the court, the cancellation of debt is not considered as taxable income.

Q) How is the tax situation for rental property different?

A) Under the Mortgage Forgiveness Debt Relief Act of 2007, you don't have to pay federal income tax on up to $2 million of debt secured by your home. This tax relief does not cover rental properties. It only applies to forgiveness from 2007 to 2012.