Officially, year-end tax planning is fairly straightforward in 2011. At year-end 2010, Congress extended many of the income tax laws that were in place at the time. Some laws were changed, especially in the estate planning area. For the most part, the tax law passed at the end of last year is effective for two years: 2011 and 2012. Therefore, you may expect to plan for year-end 2011 and for 2012 with some certainty.
As this issue is written, however, the news from Washington is far from certain. President Obama and Congressional leaders are attempting to resolve federal budget and debt issues. Tax changes are possible, and such changes may affect
year-end planning in 2011. Our office will keep you informed about any changes that become law and how they might impact your year-end tax planning. In the meantime, here is an overview of the current situation:
Income tax
In 2011, federal income tax rates range from 10% to 35%. The same tax rates will be in effect for 2012. Therefore, standard tax planning calls for deferring income to 2012, where possible, and accelerating tax deductions to 2011. With this strategy, you’ll defer tax payments and benefit by having more use of your own money. You might reverse such planning, though, if you expect your income to be significantly higher next year, pushing you into a higher tax bracket.
Estate tax
For 2011 and 2012, the federal estate tax exemption is set at $5 million. Similarly, the gift tax and generation skipping transfer tax exemptions are set at $5 million through next year. Those exemptions might be reduced in the future. Consequently, you may want to make large taxable gifts now, while the gift tax exemption is so substantial. Our office can review the tax consequences with you and make sure your estate plan conforms with current law.