1. © 2011 American Institute of CPAs Tax Saving Strategies for the 2011 Filing Season Updated January 2011

2. © 2011 American Institute of CPAs Select 2010 Tax-Law Changes >Wide-ranging tax-law changes in 2010: –Health care –Retirement –Home ownership –Unemployment –And many others

3. © 2011 American Institute of CPAs Alternative Minimum Tax (AMT) >AMT Triggers >Higher-than-average dependency exemptions >Large deductions for state and local income taxes >High real estate taxes >High miscellaneous itemized deductions and medical expenses 3

4. © 2011 American Institute of CPAs AMT Exemption Amounts and Patch >Single/Head of Household$47,450 >Married/Joint/Qualifying Widow(er)$72,450 >Married/Filing Separately$36,225 4

5. © 2011 American Institute of CPAs Estate Tax - New Law, New Options 5 >2010: Carryover basis and limited step-up basis regime for inherited assets or new estate tax law >2010, 2011, and 2012: $5 million exemption, top rate of 35% >Due date for filing estate tax returns extended >No change in gift tax in 2010 (annual exclusion $13,000)

6. © 2011 American Institute of CPAs First-Time Homebuyer Credit >Required purchase periods >First-time homebuyer/long-time resident requirement >Different credit amounts and phaseout ranges >Unavailable in certain circumstances >Expanded availability and repayment under certain circumstances >Repayment terms for 2008 purchases 6

7. © 2011 American Institute of CPAs Mortgage Debt Forgiveness >Mortgage liability post-foreclosure >Tax-free debt discharge on/after Jan. 1, 2007, and before Jan. 1, 2013 >Primary resident requirement >$2 million debt limit ($1 million if married filing separately) 7

8. © 2011 American Institute of CPAs COBRA Premium Assistance >65% premium federal government subsidy >Termination period: on or after Sept. 1, 2008 and before June 1, 2010 >Fifteen-month availability >Feb. 17, 2009, coverage date >Tax-free feature phaseout* –$125,000 to $145,000 (single filers) –$250,000 to $290,000 (joint filers) >Other options available 8 *MAGI

9. © 2011 American Institute of CPAs Making Work Pay Credit >6.2% of income earned, up to $400 tax credit ($800 if married filing jointly) >Phaseout range*: $75,000 to $95,000 (single filer) and $150,000 to $190,000 (married filing jointly) >Received through reduction in tax withholding and estimated tax payments >Special situation: both spouses employed and had withholdings adjusted 9 *MAGI

10. © 2011 American Institute of CPAs American Opportunity Tax Credit >Applies to first four years of college/ postsecondary school >$2,500 per student per year >Expanded qualified tuition and related expenses >Phaseout ranges* –$160,000 to $180,00 (married filing jointly) –$80,000 to $90,000 (other filers) >Allowed against AMT 10 *MAGI

11. © 2011 American Institute of CPAs Child Tax Credit >$1,000 credit per qualifying child >Child: –Younger than age 17 –Qualified dependent –U.S. citizen or resident >Phaseout for higher-income families >Enhanced or Additional Child Tax Credit 11

12. © 2011 American Institute of CPAs The Basics >Filing Status >Tax Rates >Standard Deduction >Standard Deduction Additions >Itemizing Deductions >Personal Exemptions >Charitable Deductions 12

13. © 2011 American Institute of CPAs Filing Status >Single >Married Filing Jointly >Married Filing Separately >Head of Household >Qualifying Widow(er)/Surviving Spouse 13

14. © 2011 American Institute of CPAs Tax Rates >10% >15% >25% >28% >33% >35% >Married filing jointly treatment 14

15. © 2011 American Institute of CPAs Personal Exemptions Top Tax BracketExemption Value 10%$365 15%$548 25%$913 28%$1,022 33%$1,205 35%$1,278 15

16. © 2011 American Institute of CPAs Standard Deduction Filing StatusStandard Deduction Single$5,700 Married Filing Separately$5,700 Married Filing Jointly$11,400 Qualifying Widow(er)$11,400 Head of Household$8,400 16

17. © 2011 American Institute of CPAs Standard Deduction Additions >Additional standard deduction for taxpayers age 65 and older or blind: –$1,400 (single or head of household) –$1,100 (married filing jointly, married filing separately or qualifying widow/er) >State/federal filing requirements 17

18. © 2011 American Institute of CPAs Itemizing Deductions >Alternative to standard deduction >Use when total itemized deductions exceed standard deductions >No phaseout rules apply >Wide range of itemized deductions >Advance planning reduces tax liability >Other deductions available 18

19. © 2011 American Institute of CPAs Charitable Deductions >50% of AGI deduction >Documentation required for monetary donations and some non-monetary donations >Donations of $250 or more (substantiation) >Donate appreciated property and avoid capital gains tax >Clothing, household items and automobiles in good condition 19

20. © 2011 American Institute of CPAs Tax Strategies for Life >Family >Education >Job >Home >Investments >Retirement 20

21. © 2011 American Institute of CPAs Family Strategies >Kiddie Tax >Adoption Credit >Dependent Care Credit >Long-Term Care Premium >Earned Income Credit >Shifting Income 21

22. © 2011 American Institute of CPAs Kiddie Tax 22 >Makes income shifting to children less beneficial >Applies to –All children younger than age 18 –Most children who are age 18 –Most full-time students between ages 19-23

23. © 2011 American Institute of CPAs Adoption Credit >Up to $13,170 per eligible child >Employer reimbursement of up to $13,170 >Phaseout rules apply >Special-needs child full credit regardless of actual expenses >Rules for U.S. and foreign adoptions differ 23

24. © 2011 American Institute of CPAs Dependent Care Tax Credit >Child must be younger than age 13 and a dependent >20% to 35% of qualifying expenses (up to $2,100) >Up to $3,000 of expenses ($6,000 for two or more dependents) >AGI considered >May also apply to other dependents >Employer-provided day care benefit >Documentation required 24

25. © 2011 American Institute of CPAs Long-Term Care Premium >Tax deduction for portion of insurance costs >Age-based deduction amount 25

26. © 2011 American Institute of CPAs Family SizeMaximum Credit Three or More Children$5,666 Two Children$5,036 One Child$3,050 No Children$457 Earned Income Credit 26 Phaseout rules apply

27. © 2011 American Institute of CPAs Shifting Income >Kiddie Tax option >Gifts: –Up to $13,000 not subject to gift tax ($26,000 if split with spouse) >Family business (hiring your minor children): –First $5,700 earned is tax-free –Earned income not subject to Kiddie Tax –W-2 and other tax forms 27

28. © 2011 American Institute of CPAs Education Strategies 28 >Tax Credits >Lifetime Learning Credit >Student Loan Deduction >Higher Education Tuition and Fees Deduction >529 Plans >Prepaid Tuition Plans >U.S. Savings Bonds

29. © 2011 American Institute of CPAs Tax Credits >American Opportunity Tax Credit and Lifetime Learning Credit >Not available to all taxpayers >Restrictions apply 29

30. © 2011 American Institute of CPAs Lifetime Learning Credit >Worth up to $2,000 per year >Applies to undergraduate, graduate and professional-degree expenses >Not limited to any number of years >Phaseout ranges* –$50,000 to $60,000 –$100,000 to $120,000 (joint filers) 30 *Pertains to MAGI

31. © 2011 American Institute of CPAs Student Loan Deduction >Deduct up to $2,500 >No limit on repayment period >No need to itemize >Qualification requirements >Phaseout range* $60,000 to $75,000 ($120,000 to $150,000 for joint filers) 31 *MAGI

32. © 2011 American Institute of CPAs Higher Education Tuition and Fees Deduction >Deduct up to $4,000 –Modified AGI Does not exceed $65,000 Does not exceed $130,000 (married/filing jointly) >Deduct up to $2,000 –Phaseout limits apply* $65,000 – $80,000 $130,000 – $160,000 (married/filing jointly) >Barred in certain circumstances 32 *MAGI

33. © 2011 American Institute of CPAs 529 Plans >Tax-advantaged way to save money for college expenses >Money grows tax-free >Tax-deferred earnings >Qualified tax-free withdrawals >Wide range of qualified expenses (no set dollar limit) >Can be used for gifts from family members 33

34. © 2011 American Institute of CPAs Prepaid Tuition Plans >State-instituted plan >Plan inception date and childs age key factors to amount contributed >Tuition costs covered not room, board or books >In-state vs. out-of-state schools >Tax treatment similar to 529 Plans 34

35. © 2011 American Institute of CPAs U.S. Savings Bonds >Tax benefits for qualified higher-education expenses >Benefit limited in certain circumstances >Phaseout ranges* (interest exclusion) –$105,100 to $135,100 (married filing jointly or qualifying widow/er) –$70,100 to $85,100 (single or head of household) 35 *MAGI

36. © 2011 American Institute of CPAs Job Strategies >Health Flexible Spending Arrangements >Health Savings Accounts >Economic Recovery Payments 36

37. © 2011 American Institute of CPAs Health Flexible Spending Arrangements (HFSA) >Tax-free contributions from wages >Fully accessible for certain medical expenses >Terms and limits determined by company plan >Use or lose component >Distributions to reservists in certain circumstances 37

38. © 2011 American Institute of CPAs Health Savings Accounts >Eligibility requirements >Tax advantages – contributions, withdrawals and earnings >Minimum annual HDHP deductible: $1,200 (self only) and $2,400 (family) >Maximum annual deductible/other out-of-pocket expenses: $5,950 (self only) and $11,900 (family) >Employee and employer contributions >Contribution limits 38

39. © 2011 American Institute of CPAs Economic Recovery Payments >One-time, tax-free $250 payment >Making Work Pay Credit offset for 2010 payments >Exceptions apply >Possible tax liability 39

40. © 2011 American Institute of CPAs Homeowner Strategies 40 >Deductions >Selling Your Home >New Energy Incentives

41. © 2011 American Institute of CPAs Deductions >Mortgage Interest Deduction –Up to $1 million ($500,000 if married filing separately) of home-acquisition loans – Up to $100,000 ($50,000 if married filing separately) of home-equity loan or line of credit –No restrictions on use of proceeds –Two types of points deductions >Real Estate Taxes –No limits on dollar amount or number of homes –Prepay/delay choice –Option if deduction is not itemized 41

42. © 2011 American Institute of CPAs Selling Your Home >Exclude up to $250,000 in capital gains; $500,000 if married filing jointly or surviving spouse in certain cases >Home owned/used as principal residence at least two of five years preceding sale >Special exceptions available >Available once every two years 42

43. © 2011 American Institute of CPAs New Energy Incentives >Qualified Energy Efficiency Improvements and Residential Energy Property Expenditures Credit >Residential Energy Efficiency Property Credit >Alternative Motor Vehicle Credit 43

44. © 2011 American Institute of CPAs Investment Strategies >Dividends >Capital Gains Tax >Offset Capital Gains with Losses 44

45. © 2011 American Institute of CPAs Dividends >Top tax rate of 15% for qualifying dividends >0% for taxpayers in 10% or 15% bracket >Check ex-dividend date >Does not apply to interest payments >Do not let tax considerations drive investment decisions 45

46. © 2011 American Institute of CPAs Capital Gains Tax >Maximum tax rate on net long-term gains is 15% >0% for taxpayers in 10% or 15% bracket >Asset must be held more than one year >28% maximum tax rate for collectibles 46

47. © 2011 American Institute of CPAs Offset Capital Gains with Losses >Capital losses netted against capital gains >$3,000 ($1,500 if married filing separately) in net long-term capital losses can be deducted against ordinary income or total net losses >Keep track of losses – unused, and short and long term >Beware of wash sale rule 47

48. © 2011 American Institute of CPAs Retirement Strategies >Employer-Sponsored Plans >IRAs >Traditional IRA to Roth IRA >Rollover to In-Plan Roth IRA >Inherited IRA >Savers Credit 48

49. © 2011 American Institute of CPAs Employer-Sponsored Plans >Pre-tax contributions help reduce tax bill >Employer matches >$16,500 maximum contribution (younger than age 50) >$5,500 additional catch-up contribution (age 50 or older) >No minimum distribution requirement >Roth 401(k) option 49

50. © 2011 American Institute of CPAs Individual Retirement Accounts (IRAs) >$5,000 maximum contribution >$1,000 additional catch-up contribution (age 50 or older) >Two types: traditional and Roth >Phaseout rules apply >No minimum distribution requirement >Open/contribution deadline: April 15, 2011 50

51. © 2011 American Institute of CPAs Traditional IRA to Roth IRA >No dollar limit on conversion amount >No early-distribution penalty in certain circumstances >Percentage of conversion income deferred to future years >No modified AGI requirement 51

52. © 2011 American Institute of CPAs Rollover to In-Plan Roth IRA 52 >Certain 401(k), 403(b) and 457(b) plans permit rollover contributions (after Sept. 27, 2010) >Special rules for 2010 rollovers >Opportunity to unwind conversion

53. © 2011 American Institute of CPAs Inherited IRA >Taxable distributions to beneficiaries >Exceptions apply >10% early distribution penalty not applicable to taxable distributions 53

54. © 2011 American Institute of CPAs Savers Credit >Nonrefundable tax credit for qualified taxpayers >10%, 20% or 50% of AGI (first $2,000 of contributions) >AGI requirements are less than: –$55,500 (married filing jointly) –$41,625 (head of household) –$27,750 (single, married filing separately or qualifying widow/er) 54

55. © 2011 American Institute of CPAs Key Takeaways >Follow CPAs advice >Dont wait until its too late >Plan for tax savings year-round 55

56. © 2011 American Institute of CPAs Thank you.