HOT TAX TIPS FOR 2011
1. If you donate stock directly to a charity instead of cash you can get a charitable deduction for the full value of the stock that went up in the value, and you can avoid paying any capital gains tax. The securities should be gifted directly to the charity. Caution: Do not sell the securities first and then give the money to the charity.
2. The law allows a deduction for the mortgage interest on your primary residence and one other second residence. A boat, camper and RV qualify for the second home definition. Therefore, the loan interest on any of these items would be a qualified deduction.
3. Timing your divorce could save you taxes. Getting a divorce before the year end will save taxes by eliminating the marriage penalty. This is the opposite of what’s recommended tax-wise for when to get married.
4. Take advantage of your company’s “cafeteria plan” (which allows employees to choose from different kinds of benefits) and other tax-free benefits. As an example, the dependent care credit provides for a credit of 20% of the child care expenses, but on your company’s “cafeteria plan” you get a tax benefit equal to the taxpayer tax bracket. Another example of this regards medical expenses. Your medical expenses can rarely be taken on schedule A due to the limitation of 7.5% of AGI. But through the company’s cafeteria plan, full deduction can be accomplished from your wages.
5. If you are starting up a business, an LLC may be the right choice. LLCs offer the advantages of limited liability and partnership taxation. There are still good reasons for choosing to operate a business as a C corporation, S corporation, or sole proprietorship.
6. Maximize your 401(K) deductions. These deductions lower your taxable income. Money in your 401(K) account is protected by law against creditors even if you declare bankruptcy. On the other hand, IRA’s do not provide the same protection against creditors.
7. Convert non- deductible expenses such as interest on credit cards and automobile loans into deductible home mortgage interest. Interest on a home equity loan or line of credit is deductible on your tax return no matter how it used. The interest expense for a home equity loan is limited to $100,000.
8. Assure that the numbers on your tax return match the 1099’s received from broker, employer or Investment Company. The gross proceeds shown on schedule D should be exactly what is shown on the 1099’s.