Regardless if you are a “glass half full” or a “glass half empty” individual, what is certain in 2011 is that with our economy still in its lackluster mode, the “glass” is not the same as it was a year ago. As 2011 trickles away and we inch our way toward 2012, there are a host of tax changes you should be aware of.

Having a better understanding of what current tax provisions are, and the changes that are coming can help you plan ahead to potentially lower your tax liabilities. With the elections on the horizon, so much is still up in the air but you can be pretty sure that – on the whole – taxes will be going up!  Being that the current tax code is over 70,000 pages, the information below is just a brief digest of some tax rules and upcoming changes that we believe may be most relevant to you, as a U.S. taxpayer. 

Paying for higher education

There are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents.  These are the American Opportunity Credit and the Lifetime Learning Credit. To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit.  For each student, you can choose to claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your child's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of his/her school costs. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

The American Opportunity Credit:

• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of post-secondary education.
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
• Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.

Lifetime Learning Credit

• · The credit can be up to $2,000 per eligible student.
• · It is available for all years of postsecondary education and for courses to acquire or improve job skills.
• · The maximum credited is limited to the amount of tax you must pay on your return.
• · The student does not need to be pursuing a degree or other recognized education credential.
• · Qualified expenses include tuition and fees, course related books, supplies and equipment.
• · The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.

You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you. Discuss with your CPA potential tax effect of paying higher education expenses. The source of the money could make a difference.

Tax changes may affect your investment strategy

The favorable long-term capital gain rates for certain investments are still available. With some exceptions, the rates range from zero to 15 percent depending on your tax bracket, and remain in effect through December 31, 2012.

The new rule is a requirement that your broker report specific basis information on Form 1099-B, the document you receive at the end of the year with the details on your stock sales. Along with the amount of your sales proceeds, your broker will report what you paid for common stocks that you purchased and sold during 2011.

The clock is ticking on the following tax breaks:

• the option for deducting state and local sales taxes in lieu of deducting state and local income taxes.
• the above-the-line deduction of up to $4,000 for higher education expenses.
• the above-the-line deduction of up to $250 for classroom supplies purchased by teachers.
• the option for taxpayers 70½ or older to make tax-free contributions of up to $100,000 from an IRA to charity.

More than making a laundry list of the many other changes, are you ready for what’s coming after December 31, 2011? What are your financial goals? Do you have a strategy for attaining them? Will you spend more time planning your spring cruise or your financial freedom? Failing to have a comprehensive estate plan means that a significant part of the work you've done throughout your life, both at your job and with your investments, can be lost, given to unintended beneficiaries or even Uncle Sam.

Your trusted CPA can cost-effectively summarize the essential financial data than most estate planning attorneys. Practitioners who have advised a family for decades will have a better understanding of family and business dynamics than an estate planning attorney who sees the client perhaps only once every three to five years. 

A CPA will help you project future needs and resources. For example, if you are you planning to diminish your taxable income by undertaking an aggressive gift program or implementing a plan to transfer significant assets to irrevocable trusts or heirs, you need to know if you will have adequate resources for all your own future needs. In providing estate planning services, your CPA provides services far beyond straightforward financial analyses. This planning area requires a special sensitivity to the dynamics of your entire life—family, finances, business, lifestyle, and goals. Your CPA’s role is to work with you to identify and clarify your goals, explain projected tax and other consequences, and recommend alternative strategies.

So, as the year closes, get that shoe box full of receipts out, know what Uncle Sam’s new tax changes will impact you most, talk to your CPA about goals for your future and start planning now for the next year and the ones after that.  The tax man cometh…. Be proactive, learn to be frugal, manage your financial affairs carefully and choose your CPA wisely.

Dalia Cantor is the owner and founder of Avalon Park Accounting located in East Orlando.  Her approach to accounting has made her firm the choice for several medical practices that have become more successful once they were able to maintain their customer focus and outsource the accounting and tax services to her firm. Her clients are located throughout the United States and Europe. She can be reached at dcantor@avalonparkaccountig.com 

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