Tax Planning

The Importance of Tax Planning

Careful planning throughout the year can assist you in reducing the taxes you pay – as well as help you achieve your financial goals. This brief guide provides a basic overview of some of the tax rates, credits, deductions and related considerations that may apply to you.

Income tax planning should not be done in isolation, but instead should be driven by your overall financial goals and integrated with your total financial plan. By developing and implementing appropriate strategies to lessen or shift current and/or future tax liabilities, you can improve your prospects of meeting both long- and short-term objectives. For example, accurately projecting your income taxes can help you determine the cash flow available to you in the coming year.

Keep in mind that tax laws are often complex and frequently change. As a consequence, you should be sure to consult the appropriate professional before making investment and/or tax decisions.

The information provided in these web pages is based on internal and external sources believed reliable; however, the accuracy and completeness of the information is not guaranteed and the figures may have changed since the time of printing. Examples are hypothetical illustrations and not intended to reflect the actual performance of any particular security. Please consult your tax advisor for questions relating to your individual situation.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period.

Year-End Considerations

While year-round tax planning is important, you may find extra benefits by gathering all your tax-related facts as the year ends. You may, for example, have a clearer picture of your capital gains and losses, as many mutual fund companies issue distribution estimates by mid-December. The end of the year is a fine time to:

Examine your portfolio’s asset allocation
Rebalance your portfolio, if warranted
Assess holdings (Are they performing as expected?)
Add up tax-loss harvesting possibilities
Max out contributions to 401(k)s or other tax-advantaged retirement accounts
Make last-minute charitable donations
Pay deductible taxes for 2011 early, if it helps reduce adjusted gross income
If the alternative minimum tax applies to you, take AMT-appropriate actions

Investors should consult a tax professional about their specific situation.

The information provided in these web pages is based on internal and external sources believed reliable; however, the accuracy and completeness of the information is not guaranteed and the figures may have changed since the time of printing. Examples are hypothetical illustrations and not intended to reflect the actual performance of any particular security. Please consult your tax advisor for questions relating to your individual situation.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period.

Key Tax Rules

Kiddie Tax Rules
The Kiddie Tax rules require the unearned income of a child or young adult be taxed at the greater of the child’s or parents’ marginal tax bracket once the unearned income exceeds $1,900. Under the Kiddie Tax rules, the first $950 in unearned income is not subject to tax. The next $950 of unearned income is taxed at the child’s rate (typically 10%). Then, any unearned income of more than $1,900 is taxed at the parents’ marginal rate. The Kiddie Tax rules apply to unearned income of the following:

Individual Retirement Accounts

Generally, contributions are fully deductible unless you or your spouse are covered by a workplace retirement plan, in which case the following deduction phase-outs apply.

Traditional IRA: Deductability of Contributions
Status Adjusted Gross Income Deduction
Married Filing Jointly* $0 – 92,000
92,000 – 112,000
More than 112,000
$5,000 Maximum
Partial
None
Single $0 – 58,000
58,000 – 68,000
More than 68,000
$5,000 Maximum
Partial
None
For Noncovered Spouse** $0 – 173,000
173,000 – 183,000
More than 183,000
$5,000 Maximum
Partial
None

*If neither individual or spouse is covered by a plan, you can deduct up to $5,000 each or MAGI, whichever is less.

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