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Now is the time of the year to review your income level to determine what tax credits and deductions you might qualify for.  It may be to your benefit to accelerate or defer income or expenses to optimize saving tax dollars.Because some tax breaks are reduced or eliminated entirely once your income reaches certain limits, you need to be aware of the income phase-out thresholds for those credits and deductions. While it doesn't make sense to make less income just to qualify for a tax break, shifting income from one year to another may sometimes be a smart thing to do.If you're close to the cutoff point between itemizing or taking the standard deduction, consider the advantage of bunching yourdeductible expenses every other year. You can then alternate between itemizing one year and taking the standard deduction the next, saving tax dollars by doing so.For help in your calculations, contact our office.    

gift box with money spilling outA lifetime gifting program might trim both your estate and income taxes. First, there's the annual exclusion for gifts. Currently, you can give $13,000 annually to any number of recipients without paying federal gift tax. Married couples can double this amount by gift-splitting; a gift of $26,000 from one spouse is treated as if it came half from each. So if your child is married; you and your spouse could gift $52,000 and it would be considered to fall under the annual exclusion if the gift is made to both your child and their spouse.Gifts do more than help out children who need the money. They also reduce your estate so your estate will pay less estate tax upon your death. Apart from annual gift giving, you can currently transfer (during your lifetime or through your estate) a total of $5,000,000 with no estate or gift tax liability. On amounts above this threshold, you or your estate will be faced with taxes at the current top rate of $35%. So a consistent program of annual gift giving might create substantial tax savings.Note that gifts to individuals do not entitle you to an income tax deduction. A gift isn't a charitable contribution. Conversely, a gift doesn't constitute taxable income to the recipient. Gifts of income-producing property may, however, reduce your taxable income. Once you've given the property away, the recipient, not you, receives the income it produces and pays any income tax due on it.One advantage to annual gift giving is that it is relatively simple to do, especially if you're giving away cash. Another advantage is flexibility. You're not locked into anything; you can see how much you can afford to give away each year. You can give away anything - cash, stock, art, real estate. Valuation is the fair market value on the date of the gift. Subsequent appreciation, if any, belongs to the donee's estate, not yours.Before you give away assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources.Proper planning is essential in this area; get professional assistance before you do any gift giving. Contact our office if we can help. 

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With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you'll be snared by it in 2011. What can cause you to owe the tax?The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation. Tax payers living in high income and real estate tax states are more likely to fall into AMT.The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.Don't itemize? The standard deduction is also not allowed for the AMT calculation. That's one reason it can sometimes make sense to itemize even when your standard deduction is higher.In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end. 

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Subscribe to Blog: November 2011