7 year-end tips to reduce 2011 taxes - WSFA.com Montgomery Alabama news.

7 year-end tips to reduce 2011 taxes

The Internal Revenue Service is reminding Alabamians that there is still a little time to take action to lower their 2011 federal taxes.

"In order to claim certain benefits on your 2011 taxes, you need to take action no later than Dec. 31," said IRS spokesman Dan Boone. "Taking steps now could save you money when you file your taxes next year."

Here are seven steps that you can take before the year ends to save on your 2011 taxes:

1. Make Charitable Contributions - Donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. Taxpayers must have a canceled check, a bank or credit union statement, a credit card statement or a written statement from the charity showing the name of the charity and the date and amount of the contribution. Donations charged to a credit card by Dec. 31 are deductible for 2011 even if the bill isn't paid until 2012. Clothing and household items donated to charity must be in good used condition or better to be deductible.

[Study: Charitable giving jumps last 2 days of year]

2. Install Energy-Efficient Home Improvements - Homeowners still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. For details see Special Edition Tax Tip 2011-08 on the IRS.gov website

3. Contribute the Maximum to Retirement Accounts - Elective deferrals to employer-sponsored 401(k) plans or similar workplace retirement programs, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees, must be made by Dec. 31. However, taxpayers have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. A taxpayer normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over.

4. Consider a Portfolio Adjustment - Check investments for gains and losses and make sales by Dec. 31. Taxpayers may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. Net capital losses that are more than $3,000 can be carried forward and deducted in future years.

5. Make a Qualified IRA Charitable Distribution - The qualified charitable distribution allows individuals age 70½ or over to exclude up to $100,000 from gross income that is paid directly from their individual retirement accounts to a qualified charity. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This tax benefit is currently set to expire after Dec. 31, 2011.

6. Alabama Tornado Victims May Be Able to File Casualty Loss Claim - Taxpayers whose property was damaged by the April 2011 storms may qualify to claim a casualty loss on their tax return. If that property is in a county that was declared a federal disaster area, taxpayers have the option of claiming that loss on their 2010 tax return or their 2011 return. That option expires after April 17, 2012. Taxpayers should see which way is most beneficial. They may need to consult a tax advisor to make that decision.

7. Don't Overlook the Small Business Health Care Tax Credit - Small employers that pay at least half of employee health insurance premiums may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees that pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

INFORMATION SOURCE: IRS Press Release

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