This month’s guest article is contributed by attorney Linda A. Winslow, J.D.
1. Investment Income: The capital gains and dividend tax rate will stay at 15% until at least the end of 2012. For any non-tax deferred investing you plan on doing, make sure you take advantage of the low 15 percent capital gains tax rate now, because the chances of it staying this low past 2012 are not great. If you are planning to reduce your real estate holdings taking advantage of this low capital gains rate will substantially increase your return on investment (ROI).
2. Small Business Capital Asset Deduction: Small businesses can benefit greatly from a few tax changes in 2011 by investing in fixed assets and equipment before December 31st, 2011. The Small Business Jobs Act signed this past September doubled the expense limitation from $250,000 to $500,000. The major advantage here is that these expenses can be fully deducted from the business' taxes if they are purchased within the year 2011. Eligible investments include office furniture and equipment, machinery, and computer software. If you flip properties, this deduction is available for any equipment you purchase. This deduction is not available for purchases of appliances for real property but can be used for such independent incomes as coin laundry equipment.
3. Roth IRA Conversion: A new change in 2011 tax laws will let anyone (no matter their income) convert a traditional IRA to a Roth IRA. In the past, there were income restrictions on who was allowed to convert a traditional to a Roth, but that has changed in 2011. If you believe that you'll be in a higher tax bracket at retirement, then converting now definitely makes sense because a Roth IRA takes in taxable money, which is then not taxed when withdrawn at the retirement age. This is a fairly complex decision, however, requiring both a good financial planner and a qualified tax professional.
4. Estate Planning: The new tax cuts and changes for 2011 can significantly save your estate money if you complete the correct estate planning. Starting in 2011, couples can add the unused estate tax exemption of their spouse (up to $5 million) to their own estate tax exemption (also up to $5 million), meaning they can transfer up to $10 million tax-free to family and heirs. For individuals with significant assets this can allow them to save big time. Remember the exemption is not automatic, individuals must plan their estate to take advantage of these exemptions before they expire. A qualified estate planning attorney can assist you with drafting your wills and trusts but the best result occurs when the estate planning attorney and your tax advisor work together.
5. Health Savings Accounts (also know as “HSAs”): HSAs are a great tool, which allow individuals and families to cover the cost of medical and health care expenses that would otherwise not have been covered by their health insurance plan. Best of all if you don’t use all the funds in any year you can keep the funds in the account until you need them. In effect, these Health Savings Accounts are tax advantaged medical savings accounts that you own. The funds that you contribute to an HSA are contributed on a pre-tax basis; that is they are not subject to federal taxes when you deposit them. Like an IRA accounts, you can contribute to your HSA account during any calendar year, through April 15th of the following calendar year.
The IRS Contribution Limits for 2010 and 2011, to a HSA plan, are $3,050 for a single individual and $6,150 for a family. If an individual account holder or the owner of a family HSA is age 55 or older, an additional “catch-up” contribution of $1,000 is also allowed.
Because any funds in your Health Savings Account not used during the calendar year, can be rolled over into the following year and continue to roll over, the balance in your HSA account can grow significantly over time.