that is the question or get back… pay in

story by | aimee schwartzwalter, cpa

With the end of the year right around the corner, it isn’t too early to start thinking about your income taxes. Every year can bring financial changes that affect the amount you owe or are returned from Uncle Sam. The following scenarios are based on common questions my clients have brought to me as the end of the year approaches. So, what should I do if…

…my income is lower than usual

Take advantage of the lower income tax bracket by converting some or all of your traditional IRA to a Roth IRA. The Roth IRA provides tax free income in retirement and can be passed along to your heir income tax free. If you have been unable to contribute to a Roth IRA in the past due to income limits, this could be your opportunity as there is no income limit for conversions in 2011.

…my income is higher than expected

Rejoice! With the economy in the doldrums, higher than expected income is a reason to celebrate. You might want to pay your real estate taxes by December 31st to deduct a full year earlier and/or pay your fourth quarter state quarterly estimated payment by December 31st. Please note that these strategies will not work if you are subject to alternative minimum tax [AMT] as taxes are not deductible.

You can also consider increasing your contribution to your employer’s retirement plan. You have until April 15th to contribute to a traditional or Roth IRA so these can be handled at tax time; however, contributions to employer plans have to be made before year end.

With a little more money in your pocket it’s also a great opportunity to make a tax deductable donation to one of your favorite organizations. Offering financial support or donating household items while receiving a tax deduction is a win-win scenario.

…should I buy something to lower my taxes

Spending $2 to save $1 is not commonly considered a wise financial strategy. If you were planning to make the purchase regardless of the tax effect, however, accelerating the purchase to deduct in the current year would be acceptable. Purchases prior to December 31, 2011 may be eligible for 100% bonus depreciation.

…I didn’t make all of my estimated tax payments

Mail the payment as soon as you realize you missed it! The penalty is based on the number of days you are late. You may be able to avoid the penalty altogether if you qualify for one of the IRS exceptions. These exceptions include disability or retirement in the current year, casualty, disaster or other unusual circumstance. Refer to the instructions for Form 2210 or consult a tax professional for details.

We are lucky to live in a country with the freedom and opportunities of the United States. Taxes help build our schools, pave our roads, fund our police and fire departments among a million other things, but let’s face it, we all like to hold on to our money. Having a handle of your financial situation throughout the year and working with an accountant you trust, can help you take advantage of available tax breaks…before Uncle Sam comes knocking!

Circular 230 Disclosure, United States Treasury regulations effective June 21, 2005 require me to notify you that to the extent of this communication, or any of its attachments, contains or constitutes advice regarding any U.S. Federal tax issue, such advice is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that can be imposed by the Internal Revenue Service.

Aimee Schwartzwalter, CPA is the principal of Accounting 4 Success. The firm, which was founded in 2002, provides complete tax services to a variety of business and individuals in the Fargo Metropolitan Area. During her career as a Certified Public Accountant, Aimee has built a reputation as an expert in tax and business consulting for self-employeds and small corporations. Aimee lives in Hickson with her husband, Chad, and their two kids, Coralie [9] and Camron [5]. They enjoy camping and four-wheeling as a family.

Accounting 4 Success

825 28th Street S, Suite D, Fargo, ND 58103 701.365.0319 | Accounting4success@netzero.com www.accounting4success.com

Our 47 attorneys strive to make a difference in the office, courtroom, boardroom and in our community. With offices in Fargo, Moorhead, Bismarck, Minot, and Minneapolis, Vogel Law Firm offers sophisticated legal representation to businesses and individuals and also supports communities throughout the region. In 2011, Vogel Law Firm was ranked the #1 law firm in North Dakota based upon the fact that 17 of its attorneys were recognized as ‘Best Lawyers’ in their respective practices (see www.bestlawyers.com). Our attorneys focus on a variety of specialized practice areas, including:

• Family Law

• Wills and Estate Planning

• Elder Law

• Business Law

• Personal Injury and Wrongful Death

• Criminal Defense Law

• Employment Law

• Litigation