Planning 2011 Tax Reductions

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At this point in the year, many taxpayers start planning strategies to enable them to get tax reductions in 2011. The conditions surrounding tax changes this year may make the effort of planning complicated. This is because a lot of the cuts implemented in '01 and '03 are going to expire at the very beginning of next year, including low-income tax rates and the cancelation of federal estate taxes. It is also uncertain whether or not Congress will resolve the deadlock in 2010. These are just some of the factors that make tax planning for reductions this year difficult.

According to tax analysts, the IRS typically publishes figures on taxes to be withheld from employees' salaries the following year - this allows workers to tweak their payroll software accordingly. If legislators lower taxes, the IRS may lower withholdings too, or otherwise publish tables using high tax rates. This will have significant effects on the average worker's finances. Here are a few tips for this year's tax planning:

Get your profits ASAP. There are no taxes on capital gains from securities held for a minimum of one year if the investor fits into the two lowest tax brackets - for everyone else, taxes are at 15%. Capital gains taxes may go back to a high 20% in 2011. If you're an investor with appreciating securities, you may want to pay lower taxes this year for more savings.

Rethink how you approach your dividends. Dividend income is taxed much like capital gains this year. In 2011, it's going to be under ordinary income tax at a possible rate of almost 40%. If you have appreciated securities, you could put them up for sale while tax rates are much lower.

Planning tax reductions is far from easy, and the hubbub that surrounds tax cuts from 2001 and 2003 make planning for 2011's taxes even more complex. While it's important for you to come up with tax strategies to avoid unnecessary losses, you don't have to plan by yourself and from scratch. Talk to your tax analyst and investment planner to know more.

About the Author:
Carina Smith is an author that specializes in financial topics concerning seniors. Puritan Financial Group specializes in giving seniors the best income sources for retirement, such as tax-advantaged tools that can create and preserve wealth. For more information about how Puritan Financial Group can help you, please visit our website at http://www.puritanlife.com



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