Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
Just as Frank Sinatra‘s song, “My Way,” begins: “and now the end is near,” tax planning season is ending… Okay, okay, so my recollection of his song isn’t exact, but it is the accountants’ version. And while the president and Congress took a (well-deserved?) Thanksgiving break, I hope they were thinking about ways to un-stuff the federal budget. For you, my suggestion is to take as many deductions this year as you can. Next year is totally uncertain.
Some of the tax benefits you have been enjoying come to an end as of December 31 (unless extended by Congress):
Social Security Tax Holiday: For 2011, you only had to pay 4.2 percent into the Social Security system instead of 6.2 percent. This stimulus didn’t hurt the Social Security trust fund, as Congress is making up the $112 billion from their pay general funds. I hope you used the extra money wisely, like increasing your 401(k) percentage, or paying down a debt.
Educator Expense Deduction: This $250 deduction (worth $40 for those in the 15 percent tax bracket) for teacher’s out-of-pocket classroom expenses covered classroom supplies, mileage, etc, as long as receipts were properly kept. (There was probably a committee that determined that teachers spend about $40 a year out of pocket for the classroom. Right, teachers? But it’s the thought that counts.)
Tuition and Fees Deduction: This deduction could reduce your income subject to tax by up to $4,000 (or $600 for those in the 15 percent tax bracket), even if you did not itemize. It especially would help those who do not qualify for the American opportunity or lifetime learning credits.
Mass Transit Fringe Benefit Reduction: Hoping that you took advantage of this $230 a month pre-taxed benefit (worth $230 a month) for mass transit or parking through your employer. For 2012, the mass transit amount is reduced to $125 a month, while the parking remains at $230. (Apparently the MTA has plans to reduce their fees.)
Mortgage Insurance Premium Deduction: As long as your (joint) adjusted gross income was less than $109,000, this deduction — for the cost of mortgage insurance for buying or building a first or second home — gave you the ability to treat this expense as home mortgage interest. I know this helped a lot of you struggling to keep your homes. Have you called your Congressional representatives yet?
Sales Tax Deduction On Schedule A: If you didn’t pay state and local income taxes, like retired public employees or those living in a ‘no-income-tax’ state like Florida, you could use the optional sales tax deduction and cut your income tax. Consider buying some big-ticket items like a new car.
Home Energy Credit: Although the prior credit was much higher, it is still worth 10 percent of the cost of your new windows, doors, skylight, insulation, and heating and air conditioning systems, but with a maximum $500 credit ($200 for windows). If you already took this credit in the past, you cannot take it again. If not, do this by December 31, 2011. $500 is nothing to laugh at.
Flex Plan: This tax benefit allows you to contribute to a pre-tax account to pay for various medical expenses during the year. For 2011, the government took away using this account to pay for non-prescriptions meds like over-the-counter aspirin, allergy meds, Band Aids, etc (except for insulin). Except for your employer’s restriction, there is no statutory limit on the amount you can sign up for. In 2013 there is a congressionally-mandated maximum of $2,500. Therefore, for 2012 consider increasing your spending amount and accelerate some medical expenses like eye laser surgery or tooth veneers.
$13,000 Gift: Although not expiring in general, if you don’t use this by the end of the year, the 2011 gift ability is gone. This annual gift exclusion allows you to give to your children, or anyone else, like your accountant, up to $13,000 without filing any gift tax forms. And if you have more spare change, the 2011 lifetime limit is $5 million. Expect to see this decrease to the form $1 million.
Planning Ideas: If you haven’t spoken with your tax preparer this year, call now. Review your possibilities, like maximizing your 401(k) contribution, selling some investment losers, or taking advantage of the 15 percent long-term capital gains rate on profits, bunching deductions to be able to itemize, paying your January mortgage payment, real estate tax, or state income tax estimate in December, or making a contribution to your state’s 529 college plan. Your preparer has nothing to do this week. Give a call.
(And remember: Money does not talk; it just goes without saying.)
Have a good week.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.