If you are self employed and are trying to decide whether to purchase that additional piece of equpment, be aware that in 2011, you can write off equipment under section 179 up to $500,000. This will phase out after you have purchased $2,000,000 in assets. Congress also upped the 50% bonus depreciation in 2010 to 100% in 2011 (they want people to buy equipment) so you can pretty much write off everything! (Federal only: state rules have nothing to do with the federal rules).Section 179 assets are only deductible if you have income. To generate a loss it is better to use the bonus depreciation. Here is a planning strategy: if your business had income in the last few years, don’t elect sec 179; use the bonus depreciation instead, create the loss, carry it back to the year(s) of income and get a refund. If your business didn’t have income before, but you expect income in the next few years, you can use the 179 to wipe out 2011 income, then can carry it forward to wipe out future income. You will probably want to talk about this planning as each situation is different.
Brian’s Tax Musings
If you planned on converting your Traditional IRA to a Roth IRA in 2010 because of the repeal of the AGI limitation of $100,000, don’t panic! Even though you can no longer defer paying taxes until 2011 and 2012 (now you have to pay tax on the conversion in the current year), at least you can still make the conversion in 2011 if you want. Just remember you have to pay income taxes on your 2011 conversion by April 15, 2012, so make sure you have the money outside of the IRA to pay the tax. You also have to keep the money in the account for the later of 5 years or when you turn 59 1/2 or you pay 10% in penalties, although you can take the contributions back without penalty any time.There may also be a planning opportunity. Say you make too much to make a Roth contribution but you have a 401K at an old job or aTraditional IRA; you could convert some or all of it. Let me know if you have questions.
Brian’s Tax Musings
Do you have an FSA (Flexible Spending Account) at your work? This allows you to contribute an amount specified by your employer as before-tax money to pay for your medical expenses. Sometimes the amount allowed has been as much as $5000. You can still use FSA money to pay for a lot of medical expenses, but over-the-counter medication is no longer allowed in 2011 unless you have a doctor’s prescription. See this link for more info as well as some future changes under the Health Care Bill limiting the maximum contribution to these plans:http://www.fivecentnickel.com/2010/08/30/flexible-spending-account-changes-for-2011-and-beyond/The thing is, even with the new restrictions, it still is smart to contribute to these plans if your employer provides them. WIth tax rates only going to go up in the future, any tax-advantaged vehicle can save you taxes on money you would have spent anyway.