Archives For Todd Burkhalter

2011 Tax Planning Tips

November 21, 2011 — Leave a comment

Year-end tax planning is especially challenging this year because of ongoing uncertainty related to whether Congress will enact sweeping tax reform. And even if there is no major tax legislation in the near future, Congress will still have to deal with a number of tricky issues in 2012, such as what to do about the expiration of the Bush-era tax cuts on December 31st. Regardless of what steps are taken, spending a little time on tax planning now is a good idea.


While my primary expertise lies in wealth management, I have worked with both internal and external  CPA friends to compile these tips for you. Before acting on any of the advice in this communication, we suggest you consult with your personal tax professional. If you don’t have one that you enjoy working with, please let me know and I will introduce you to one of our trusted associates. First consider these 13 Tips….


Get Organized

This is an excellent time of year to get your financial house in order. Gather cash receipts to help you calculate possible deductions and miscellaneous payments. Do you have a hobby or activity that generates income? If so, any losses might also be eligible for deduction. Have you made home improvements? Charitable contributions? Get all of your documentation together early to make your life a little easier in April.


Contribute the Maximum to Your Retirement Plan

You have until April 17, 2012 to make IRA contributions for 2011, but the sooner you get your money into the account, the sooner it has the potential to start growing tax-deferred. Making deductible contributions also reduces your taxable income for the year. You can contribute a maximum of $5,000 to an IRA for 2011, plus an extra $1,000 if you are 50 or older. This limit can be split between a traditional IRA and a Roth IRA if you desire, but the combined limit is still $6,000.[i]The amount you can contribute to a Keogh plan depends upon the type you choose.[ii]


Check Your IRA Distributions

You are required to make minimum distributions from your traditional IRA by April 1st following the year in which you reach age 70 ½. Failing to take out enough triggers a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and the amount in the account at the beginning of the year.[iii]



If you would rather give the distribution to charity, you will be happy to know that the qualified charitable distribution (QCD) provisions were renewed for 2010 and 2011, allowing individuals age 70½ or over to exclude up to $100,000 from gross income that is paid directly from their individual retirement accounts (excluding SEP or SIMPLE IRAs) to a qualified charity. The excluded amount can be used to satisfy any required minimum distributions that you must otherwise receive from your IRA.[iv]



Fatten Your 401(k)

Tax-deferred investing is a smart choice because it allows your money to grow tax-free until you withdraw it. Maximize your 401(k) contributions, up to $16,500 or $22,000 if you will be age 50 or older in 2011.


Go Loss-Harvesting

Selling investments such as stocks that have experienced losses, can help to offset any taxable gains you have realized during the year. If your losses are more than your gains, you can use up to $3,000 of excess loss to decrease other taxable income. If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use that loss to offset any 2012 gains, plus up to $3,000 of other income. Losses can be carried over every year for as long as you live.[v]

Delay Some of Your Income

Income is taxed in the year it is received – but why pay tax today if you can pay it tomorrow instead? Depending on your circumstances, you may want to push some of your income into 2012. It’s tough for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year. If you are self-employed or do freelance or consulting work, you have more flexibility. Delaying billings until late December, for example, can ensure that you won’t receive payment until 2012. Postponing your income is a good idea if you expect to be in a lower tax bracket next year.[vi]


Give Attention to Your FSA

This time of year is when you probably need to specify how much salary you’ll contribute to your flexible spending account. Not only is it appropriate to review your changing needs, but tax-free withdrawals can then be taken from these accounts for medical, dental, and child-care costs. You will forfeit any balance left in these accounts at the end of the year, so take advantage now by filling prescriptions early, making medical or dental appointments, or scheduling elective surgeries.



Accelerate Your Mortgage Payments



Unlike rent, which is paid in advance, mortgage payments are made at the end of your occupancy period. That means your January 1 mortgage statement represents interest for December, making it eligible for a tax break this year. By accelerating that payment even by just a day, you get an additional deduction for the interest paid. Don’t get greedy though. You can’t make your February, or any other upcoming, mortgage payment early to boost your year-end deduction amounts. Tax law generally prohibits write-offs for prepaid interest (although there is an exception for loan points in some cases). Note: Accelerating your mortgage payments may not payoff if you expect to be subject to the Alternative Minimum Tax (AMT). If you are unsure, discuss the matter with your tax professional.[vii]  

Go Green

Buyers of plug-in hybrids and electric cars benefit from a tax credit of $2,500 to $7,500, depending on the size of the battery in the car. The credit maxes out at $7,500 for cars with a 16 kWh battery pack, like the Chevy Volt. The credits were provided as part of the American Recovery and Reinvestment Act, otherwise known as the “stimulus bill.”[viii] In addition, energy-efficient home improvements to your principal residence such as installing a heat pump, qualify for credit of 30% of the cost, and can be claimed on your 2011 taxes.[ix]



Be Charitable



A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. If the gifts are deductible, the actual cost of the donation is reduced by your tax savings. For example, if you are in the 33% tax bracket, the effective cost of a $100 donation is only $67. As your income tax bracket increases, the real cost of your charitable gift decreases, making contributions more attractive for those in higher brackets. For a person in the highest tax bracket, 35%, the actual cost is only $65. Not only can the wealthy afford to give more, but they receive a larger reward for giving.[x] 


Give a Gift

This time of year, many people choose to donate items to charity instead of making a monetary contribution. Not only does this save you money and prevent perfectly good items from getting wasted, but charitable donations can be deducted from your taxes as long as you get written documentation of the donation.

Most gifts are not subject to the gift tax. For instance, you can give up to the annual exclusion amount ($13,000 in 2011) to any number of people every year, without facing any gift taxes. Recipients never owe income tax on the gifts. In addition to the annual gift amount, you can give a total of up to $5 million starting in 2011 in your lifetime before you start owing the gift tax.[xi]


Fund an Education

The American Opportunity tax credit is valued at $2,500 for 2011, up from $1,800 in 2008. Because a tax credit reduces your tax bill dollar-for-dollar, this basically means the government will give you up to $2,500 per year for each qualifying college student in your family. And unlike the old Hope credit, which only covered the first two years of college, the American Opportunity credit can be claimed for all four years of post-high-school education. You can get the maximum credit if you spend at least $4,000 in qualifying expenses, which now includes the cost of books, tuition, and fees.[xii]


Buy Something Nice

Sales taxes you have paid on the purchase or lease of a vehicle, the purchase of a boat or aircraft, or the purchase or renovation of a home may all be eligible for deduction against your federal income taxes. Additionally, people who claim the sales tax deduction don’t have to report any state income tax refund as taxable income in the following year. So if your sales tax deduction is about the same as your income tax deduction, you’ll probably come out ahead by taking the sales tax deduction.[xiii]


In conclusion:

I hope you will find some of these strategies useful as you go through your tax planning process. One of the ways we help our clients is by working hard to provide tax-smart investment strategies to minimize the impact Uncle Sam can have. In addition, we consider it our responsibility to educate you about things that could affect your financial future. As always, feel free to contact me with any questions, and to discuss points of interest with your tax professional as there may be crucial details involved in making your plan effective.

What will stop you from taking these steps?






Weekly Update – November 14, 2011


It was another yo-yo week for the stock market as ongoing worries surrounding Europe’s debt crisis kept investors in suspense. The choppy period eventually ended with a rally on Friday as welcome news of a political shake-up in Greece and Italy boosted confidence that there will be further progress toward a solution.


Greek Prime Minister George Papandreou has been replaced by former banker and European Central Bank Vice President Lucas Papademos[i], while Italian Prime Minister Silvio Berlusconi, who resigned on Friday, will likely be replaced by former EU Commissioner Mario Monti. The world will be watching as new leadership in both countries fight to implement reforms quickly and aggressively. Just Saturday, the Italian lower house of parliament approved a series of austerity measures demanded by Europe to shore up confidence in the country’s economy. It passed by a vote of 380 to 26.[ii]


Why should any of this matter to Investors? While Greece is only the 32nd largest economy in the world, Italy holds the 8th spot, and is the 3rd largest in Europe.[iii] If these two countries can get their acts together, other debt-laden countries in the region will have a model to follow. If they fail to create change, the consequences could be far-reaching. Europe as a whole makes up 25-30% of the global economy, and millions of American jobs depend on stability and growth there. To quote Jacob Kirkegaard of the Institute for International Economics: “Europe is by far our biggest trading partner. It’s where most of our exports go. It’s where we have most of our foreign direct investments. US multinational corporations are in Europe.” [iv]



The Cycle of Growth

November 8, 2011 — Leave a comment

If there is one factor with the greatest potential to mend our economy, it is a steadily improving employment picture. How so? When you look at the U.S. economy as a whole, it is primarily supported by consumer spending.[i] In order for consumers to spend, they must have a measure of disposable income. In order to have disposable income, Americans must have jobs.


To look at it another way: As the employment situation improves, consumer spending typically increases, thus creating additional demand for goods and services. As demand for goods and services grows, more production is needed, thus creating more jobs, and so on. At risk of oversimplifying, this combination of factors explains the cycle of a healthy economy.


So are we seeing improvement in the nation’s jobs picture? Yes. One year ago, the unemployment rate was 9.7%. As of October’s report, it dropped to 9%. On average 152,000 jobs have been added each month during the same time period, for a total of 1.8 million jobs. In addition, the workweek has lengthened and wages are up 1.8%.[ii] All of this shows that the employment picture is gradually improving. Interestingly, October also showed improvement in chain store sales. Overall, the 23 major U.S.-based retailers that report monthly results posted a composite 3.4% gain, according to Thomson Reuters data.[iii]


Does this mean we are completely out of the woods? Not necessarily. For the most part, American wallets aren’t fat enough to push the economic expansion into hyperdrive. Even the 1.8% wage growth mentioned above isn’t enough to keep pace with current inflation rates. We still have a long way to go to reach our full potential, but things are moving in the right direction.


Monday –
Consumer Credit
Tuesday – Redbook
Wednesday – Wholesale Trade, Ben Bernanke Speaks at 9:30AM Eastern
Thursday – International Trade, Jobless Claims, Import and Export Prices, Treasury Budget
Friday – Consumer Sentiment