The year is not over and it is not too late to make some shrewd moves to save on your yearly tax bill. In our last post we discussed the importance of proper tax planning for high income individuals and the fact that some deductions may trigger an IRS audit. We also discussed three tax saving tips that the IRS recently issued including donating to charity, installing green-energy appliances, and making changes to an investment portfolio.
Each of the IRS' tax saving tips can help a California taxpayer save money, but each tip has several rules and exceptions that may apply. That is why it is important to consult with an experienced tax professional if you are considering taking one of these last-minute deductions.
The last three of the IRS' tax saving recommendations involve retirement and business-related deductions. For example, the IRS recommends making the maximum contribution to retirement accounts. Elective deferrals made to workplace retirement programs such as 401(k) accounts must be made by Dec. 31 but individuals can make IRA contributions until April 17, 2012 and apply these to 2011 taxes. Low-to-moderate income individuals may also qualify for the Retirement Savings Contribution Credit, but the election to take other credits may impact or eliminate the possible benefit of this credit.
Individuals over age 70.5 can make a Qualified Charitable Distribution (QCD), which is a charitable contribution made directly from an individual retirement account to a qualified charity. The maximum annual limit for QCDs is $100,000 and the benefit is even available to those who do not itemize deductions.
Finally, it is important not to overlook the possibility of taking the Small Business Health Care Tax Credit. This credit is available to small employers that pay at least half of their employee health insurance premiums. The credit is worth up to 35 percent of the premiums paid.
Source: Internal Revenue Service, "Six Year-End Tips to Reduce 2011 Taxes," Special Edition Tax Tip 2011-09, Dec. 21, 2011