The Investment Scientist

2011 Year-End Tax Planning Tips for Individuals

Posted on: October 19, 2011

Tax Loss Harvesting

Realize losses on investment without substantially changing your portfolio positions; for instance, selling Vanguard 500 Index and buying Vanguard Total Stock Market Index.

Roth Conversion

If you do a Roth conversion, the IRA account will become a multigenerational tax shelter. Do this only if you have sufficient cash to pay taxes now.

Capital Gains

The 15% rate on long-term capital gains was extended through the end of 2012. After that, the rate could go up to 20% or higher. You may want to sell assets to realize long-term capital gains and reset the basis.


The 15% rate on qualified dividends was also extended through 2012. If you are a shareholder in a closely held corporation with accumulated retained earnings, you may wish to take dividends now, while the rate is low. In 2013, a surtax on investment income will become effective.

Required Minimum Distribution (RMD)

If you are age 70.5 and older, don’t forget RMD from your IRA and 401k plan.

Health Flexible Spending Account (FSA) and Health Savings Account (HAS)

Increase the amount you set aside for next year in your employer’s health FSA if you set aside too little for this year. If you become eligible to make HSA contributions in December this year, you can make a full year’s worth of deductible contributions for 2011.

Qualified Small Business Stock (QSBS)

Purchase QSBS before the end of this year. There is no tax on gains from the sale of such stock if it is (1) purchased after 9/27/2010 and before 1/1/2012 and (2) held for more than five years.

Bonus Depreciation

This is still in effect and allows expensing of 100% of the cost of eligible assets acquired in 2011. The rate will fall to 50% and the provision will expire at the end of the year.

Charitable Gifting

Gift your significantly appreciated assets, or if you are age 70.5 and older directly from your IRA.


You can give a total for the year of up to $13,000 to each individual without reducing your lifetime gift or estate tax exclusions.

Kiddie Tax

If your children do not fall under the kiddie tax rules, give them appreciated shares of stock or mutual funds instead of cash. Their lowest capital gains tax rate could be 0%.

Education Saving

Set up 529 plans for your children and claim state tax deductions. The deduction limit is per plan owner per beneficiary. Take Virginia, for example; the limit is $4,000. For a couple with three children, the maximum state tax deduction is 2x3x$4,000 = $24,000.

Energy Tax Credit

If you are a homeowner, making energy savings improvements to the residence may qualify you for a tax credit if those improvements were installed in your home before 2012

*In creating the list, I referenced the newsletters of E Cohen and Company and Klausner, Bendler + Associates. All errors remain mine. Check with your own CPA before executing any of the tips.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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