For businesses Defer deductions and accelerate income One way of deferring deductions, whether you use the cash or accrual basis method of accounting, is to elect out of bonus depreciation and not expense capital acquisitions under IRC section 179. This would allow you to claim depreciation deductions in later years.
Postpone deductible expenses until after the first of the year For cash-basis taxpayers, postponing deductions could reduce taxable income in a year when tax rates would be higher. From a tax savings perspective, these expenses become more valuable in the year with higher tax rates.
For individuals Time your charitable contributions If rates increase in 2012 you may want to defer charitable contributions in order to obtain the benefit of the deduction at a higher tax rate. Keep in mind there are tax reform proposals limiting the tax benefit of itemized deductions to 28 percent for taxpayers in higher brackets. Therefore, even though deferring contributions to a higher-rate year might seem like the best strategy, the actual benefit would be less if the itemized deduction limitation becomes law.
Reinsurance plan dividend Consider issuing a dividend out of a reinsurance plan prior to year end to take advantage of current capital gain rates in anticipation of future increases in capital gains tax rates.
Roth IRA conversion It may be beneficial in the long term to convert your traditional IRA to a Roth IRA before income tax rates increase. Keep in mind that income from conversions made in 2011 must be recognized in the current year. Roth IRAs have no required minimum distributions during the owner’s life and withdrawals are tax-free. Beginning in 2010 AGI limitations were eliminated making virtually all taxpayers eligible to convert to a Roth IRA.
