Year-End Tax Steps to Consider

As the end of the calendar year approaches, we’ve asked our accountant to share his perspective on year-end tax steps that readers should consider. He’ has graciously accepted; though wants us to make it crystal clear this article is for educational purposes only. It is not actual tax advice -- which of course must be based on your own specific circumstances. Any action you may decide to take on these topics should be done, if possible, in careful consideration and collaboration with an accounting professional you trust.

In this post, I’ll provide a few checklists of year-end activities to help you:

  • be aware of the range of deductions/tax breaks you’re legally entitled to
  • avoid some common risks most taxpayers don’t realize they’re exposed to
  • learn some useful tips if you own your own business or own alternative investments

When it comes to ‘year-end’ planning, there are certain numbers that should be pretty well established by this time:

  • For instance you should have a good idea what tax bracket you are in and how close you are to the next bracket down and the next bracket up.
  • If you are self-employed, you should have a good handle on your taxable bottom line (before and after Section 179 and/or First Year Bonus Depreciation).
  • You should also know the value of your retirement accounts and whether or not you are required to make distributions; indeed, how much are you required to distribute.

Start by making your best estimate of these, and we may find a few ways to allow you to improve these key numbers in your favor:

For Individuals
  • Bunch your miscellaneous itemized deductions so that you can get over the 2% fence, as some portion of them may become deductible (without bunching, none are). Pay them this year instead of next. Then skip next year.
  • Do the same with other itemized deductions if you can, such as medical expenses, state taxes, and charitable contributions.
  • Estimate your 2012 income against your 2011 income. Try to time deductions to coincide with the higher income year. Better if they are used against higher tax bracket income.
  • Sell securities that are losses before you sell the gainers. Remember that you can re-buy them after just thirty days, but not before.
  • Give appreciated stock instead of cash to your favorite charities. If you have held the stock for a year or more, you can deduct the market value, rather than the cost. You could replace this stock with a purchase as well and don’t have to wait thirty days.
  • If you have sold loser stocks earlier this year, then this is a good time to sell the gainers at least up to the level of the losses you incurred.
  • Invest in Residential Energy Efficient Property and/or Nonbusiness Energy Property for the tax credits.
  • If over 70½ years of age, make Qualified Charitable Distributions from your IRA. Up to $100,000 to an approved charity is without tax strings.
  • If over 70½, be sure to take the required distributions from your retirement accounts. The penalty for failing to do that is confiscatory.
  • Are you planning on making IRA contributions? Roth or regular? Spousal?
  • Are you considering moving regular retirement account balances into a Roth IRA? How much is that going to cost in tax?
  • Use up all of your Healthcare or Childcare Flexible Spending Account at work (if you are lucky enough to have it.) Certainly look at your usage in the past years and adjust the amount for next year accordingly.
  • Estate planning – determine how much you may want to gift for 2011 and to whom. For the first time in my life, one can gift an amount equal to the estate tax exemption: $5,000,000. Indeed, your spouse can do the same thing. If you are fortunate to be able to do that, or any part of it, consider an irrevocable trust to benefit your grandchildren. You could even fund it with holdings in a depository like BullionVault as long as there is also enough cash to cover the annual expenses. Some states allow trusts to avoid the rule against perpetuities. If you use that law, you can establish a trust that might last 1,000 years! (or more)
For Business Owners
  • If you are in business, take advantage of the Section 179 deduction. Just make sure that you put the equipment into service before the end of the year. Also, the maximum deduction is substantially reduced from $500,000 to $125,000 between this year and next. If you have big equipment to purchase, this might be the better year. You can always carry over unused deductions to next year.
  • Some real property costs can be deducted under Section 179 also. Qualified costs for restaurant buildings and improvements to interiors of retail and leased nonresidential buildings are deductible up to $250,000. Though for any Section 179 deduction, check with your state’s rules. Not all states allow such a large deduction, which will trigger state tax, which is really uncomfortable when you just spent all your money on that thing and now you have to come up with more money for state tax that you didn’t consider.
  • Again for businesses this is the last year for the 100% First-Year Bonus Depreciation. In fact, you can actually create a Net Operating Loss with this depreciation (not with Section 179). If you do, you could carry that loss back to 2009 and 2010 (or forward, if you wish)
  • Many, many businesses who qualify for the Health Insurance Tax Credit for Small Employers have failed to take it. Admittedly, it is time consuming to gather the data, but it is usually worth the cost. The basics require that you have no more than 25 full time employees (much better if you have no more than 10), that these employees make, on the average, less than $50K (better if less than $25K), and there is some form of qualifying healthcare plan in effect.
  • Employ your child. Employ your spouse. Children are often in a lower bracket. Spouses can get employee benefits like health insurance which is totally deductible in the business BEFORE Social Security tax. Both the children and the spouse can then contribute to an IRA, as well.
  • You could set up or fund a SEP IRA, 401(k), or SIMPLE plan.
  • There is a Saver’s Credit for contributions to an employer plan.
  • If you are a small business, there is a credit for Small Employer Pension Plan Startup Costs.
  • There is a credit for Employer-Provided Child Care for employers who support child care or child-care resources and referral services. The credit is allowed for a percentage of “qualified child-care expenditures” including for property to be used as part of a qualified child-care facility and for resource and referral expenditures. 
Special Cases
  • Sprott Funds - If you are invested in any of investments with Sprott Asset Management, it is wise to make either a mark to market or a Qualified Election Fund (QEF) election with the IRS. If you don’t make either one of these elections, you have to pay tax on the gain – even though you haven’t sold investments yet. The QEF election is made on form 8621 and filed with a timely filed federal tax return.  That form and other tax information can be found at: or depending on which metal you hold through Sprott.
  • Self-directed 401ks - Furthermore, if you have a self-directed 401(k), you are required to file form 945 before the last day of January. It most likely is populated with zeros, but it is required. It certainly cannot hurt to file it. Anyway, once filed after you have checked the box at “A” stating that you don’t have to file returns in the future, you are done with this form.
  • Foreign Accounts - Indeed, if you or your retirement account has an interest in any foreign bank account or financial account (like metal ownership), the owner MUST file Treasury Department Form 90-22.1 by June 30 every year that the balance in ALL your accounts equals or exceeds $10,000 during the prior year, if even for just a moment. (2011, in this case). Under the present regime, failure to do this can trigger a visit by the big guys from Treasury with the shiny badges. (Just as a note, if you are the unfortunate beneficiary of such a visit, DON’T say anything but “I want my lawyer present.” And, yes, you will have to hire a lawyer, no matter how innocent you are.) And don’t forget to check the box on form 1040 Schedule B, Part III line 7(a) and (b). letting them know you have a foreign account that was worth over $10,000 at some point during the year.

Good luck!
Anthony South

A reminder: These are steps to consider in the remaining days of 2011. But any action you ultimately take should be done under the guidance of an accounting expert you trust.

Also -- if you don’t already have one -- finding a good, independent financial advisor to help you transition into the new year with a sound investment plan that you have confidence in should be a high priority. As mentioned before on this site, if you’re having trouble finding one, we have one to recommend.

This What Should I Do? blog series is intended to surface knowledge and perspective useful to preparing for a future defined by Peak Oil.  The content is written by readers and is based in their own experiences in putting into practice many of the ideas exchanged on this site.  If there are topics you'd like to see featured here, or if you have interest in contributing a post in a relevant area of your expertise, please indicate so in our What Should I Do? series feedback forum.

If you have not yet seen the other articles in this series, you can find them here:

This series is a companion to this site's free What Should I Do? Guide, which provides guidance from Chris and the staff on specific strategies, products, and services that individuals should consider in their preparations. 

This is a companion discussion topic for the original entry at

FWIW…the Sprott Funds info above also applies to the Spicer Funds GTU and CEF.

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