Successful tax planning includes a review of your available deductions and the impact of your filing status on your option to itemize. It is important that all of the technical requirements for your deductions are met. In addition, certain items are deductible only to the extent they exceed a percentage threshold. By reducing your adjusted gross income, you increase the amount of itemized deductions you can claim, because the floor limitation amounts are reduced accordingly.
A strategy commonly used in year-end individual tax planning is to determine the best timing for claiming itemized deductions. Generally, it is beneficial for taxpayers to defer income and accelerate expenses. This strategy may enable you to itemize your deductions if you claimed the standard deduction in the past. This year, there is more uncertainty due to the sunset of various tax incentives originally provided by EGTRRA and regularly extended by other tax acts.
Unless they are retroactively extended by Congress, the following provisions are not available for 2012:
- Itemized deduction for state and local general sales taxes in lieu of state and local income taxes
- Mortgage insurance premium deduction
- Above-the-line deduction for certain out-of-pocket classroom expenses
- Above-the-line deduction for qualified tuition and related expenses
- Alternative minimum tax (AMT) patch
- Nonrefundable tax credit offset of entire regular and AMT tax liability
- Tax-free IRA distributions to charity
Tax planning for higher-income taxpayers is more complicated. Generally, you must reduce your otherwise allowable itemized deductions if your adjusted gross income exceeds a specified threshold amount. Although the phase-out of itemized deductions and personal exemptions for higher-income taxpayers is eliminated through 2012, the phase-out limits are set to return in 2013.
The failure to take the alternative minimum tax (AMT) into account may also jeopardize your tax planning strategy, as the AMT continues to negate many itemized deductions. The AMT exemptions amounts have been increased through the 2011 tax year, but uncertainty exists for 2012 and later years.
You may benefit from planning strategies designed to take advantage of the current tax laws. Maximizing your itemized deductions is an important aspect, but there are other issues that you may need to consider in light of your overall tax scenario. We hope to provide you with planning options that enable you to achieve the greatest tax savings possible. Please contact our office at your earliest convenience to make an appointment to discuss your tax planning options.