Monday, December 19, 2011

December is the Best Month to Save on Taxes

In the tax preparer world December is known as tax planning month. As a CPA this is my favorite month because it is the month I can help save the most money for my clients.

I love my job most when I effectively use the tax code to my client’s advantage. Tax planning allows clients to save money.

Here are great tax planning strategies I employ to help my clients:

Charitable Giving

The holidays are a great time to give back to your favorite charity by making a donation of old clothing or miscellaneous personal property. Charitable donations may increase a taxpayer’s itemized deductions.

Gifts to Loved Ones

In 2011 you can gift up to $13,000 per person without filing gift tax returns or paying gift taxes. The lifetime gift and estate exclusion is currently $5 million. The lifetime exclusion amount may change at the end of 2012 as the current tax laws are set to expire on December 31, 2012.

Roth IRA Conversions

In 2010 and 2011 you can convert an unlimited amount from your 401(k), SEP IRA, Traditional IRA and other retirement accounts into a Roth 401(k) or IRA. You have to pay tax on the amount converted but if you have a low income year or unused itemized deductions, a Roth conversion may be a great way to let your retirement funds grow income tax free.

Timing of California and Real Property Tax Payments

In general, state income and property taxes that are deductible as an itemized deduction. By working with your tax preparer you can determine if paying more of the taxes in the current year versus in the next year will save you money. For individuals that have fluctuating income this strategy is especially effective.

Update your Trust and Estate Planning Documents

Your trust and estate plan may be the most important item when you are planning for your heirs. December is a great time to meet with your estate planning attorney and accountant to update your plan documents for any changes that have occurred. Trusts are easy to forget when you do not need them, but are vital when you do.

If you do not have a an estate plan, we highly recommend you meet with a local estate planning attorney and accountant so your family does not encounter delays in settling your estate.

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Joe Bishop is a Certified Public Accountant at Nasif, Hicks, Harris and Co., LLP. Joe can be reached via phone at (805) 979-9383 or via email at JBishop@nhhco.com.

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