Careful planning throughout the year can assist you in reducing the taxes you pay – as well as help you achieve your financial goals.

Click the links below to learn about tax planning:

The information provided in these web pages is based on internal and external sources believed reliable; however, the accuracy and completeness of the information is not guaranteed and the figures may have changed since the time of printing. Examples are hypothetical illustrations and not intended to reflect the actual performance of any particular security. Please consult your tax advisor for questions relating to your individual situation.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period.

The Importance of Tax Planning

Careful planning throughout the year can assist you in reducing the taxes you pay – as well as help you achieve your financial goals. This brief guide provides a basic overview of some of the tax rates, credits, deductions and related considerations that may apply to you.

Income tax planning should not be done in isolation, but instead should be driven by your overall financial goals and integrated with your total financial plan. By developing and implementing appropriate strategies to lessen or shift current and/or future tax liabilities, you can improve your prospects of meeting both long- and short-term objectives. For example, accurately projecting your income taxes can help you determine the cash flow available to you in the coming year.

Keep in mind that tax laws are often complex and frequently change. As a consequence, you should be sure to consult the appropriate professional before making investment and/or tax decisions.

Year-End Considerations

While year-round tax planning is important, you may find extra benefits by gathering all your tax-related facts as the year ends. You may, for example, have a clearer picture of your capital gains and losses, as many mutual fund companies issue distribution estimates by mid-December. The end of the year is a fine time to:

  • Examine your portfolio’s asset allocation
  • Rebalance your portfolio, if warranted
  • Assess holdings (Are they performing as expected?)
  • Add up tax-loss harvesting possibilities
  • Max out contributions to 401(k)s or other tax-advantaged retirement accounts
  • Make last-minute charitable donations
  • Pay deductible taxes for 2011 early, if it helps reduce adjusted gross income
  • If the alternative minimum tax applies to you, take AMT-appropriate actions

Investors should consult a tax professional about their specific situation.

2011 Income Tax Changes

Americans will not see rate changes on their taxes for 2011 due to the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 16, 2010. The bill extends the Bush-era tax cuts that were scheduled to expire after 2010 and would have affected virtually all aspects of tax code. The new law extends the cuts through 2012. Here are some key topics of which you should be aware:

Qualified Charitable Distributions
The Qualified Charitable Distribution rules are back. The rule allows a person over 70 ½ to distribute up to $100,000 per year tax free. The distribution is per IRA owner or beneficiary, and the check has to be payable directly to the eligible charity. The provision is extended through 2011.

Estate Tax
The estate tax has been revived and is reunified with the gift taxes. The maximum tax rate is 35% with an applicable exclusion amount of $5 million for 2011 and 2012.

The modified carryover basis rules are once again replaced with the step up in basis rules that had applied until 2010. For estates of decedents dying 2010, there is an option to elect not to apply the step up basis rules (item A), but instead use the modified carryover basis rules (item B):

A. The estate tax based on the new 35% top rate and the $5 million exemption with a stepped up basis, or

B. No estate tax and use the modified carryover basis rules which limit the step up to $1.3 million for assets transferred to a surviving spouse.

Another new twist to the estate tax is the portability between spouses of the unused exclusion. With portability, a surviving spouse could elect to use the unused portion of the estate tax exclusion of his or her predeceased spouse if the election is made on a timely filed estate tax return.

Payroll Tax Holiday
Millions of individuals will see their paychecks increase as the tax bill provides for a payroll tax holiday. This holiday reduces the employee share of the Old Age and Survivors Disability Insurance (OASDI) portion of Social Security taxes from 6.2% to 4.2% for wages earned in calendar year 2011 up to the taxable wage base of $106,800. Self-employed individuals would pay 10.4% on self-employment income up to the threshold.

* Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Income Tax Rates

Taxable income is income after all deductions, including either itemized deductions or the standard deduction, and exemptions.

Married Taxpayer Joint/Surviving Spouse

Taxable IncomePayPercentage
of Excess
Of Amount Above
Less than $17,000N/A10%$0
17,000 – 69,000$1,700.001517,000
69,000 – 139,3509,500.002569,000
139,350 – 212,30027,087.5028139,350
212,300 – 379,15047,513.5033212,300
More than 379,150102,574.0035379,150

Single Taxpayer

Taxable IncomePayPercentage
of Excess
Of Amount Above
Less than $8,500N/A10%$0
8,500 – 34,500$835.00158,500
34,500 – 83,6004,750.002534,500
83,600 – 174,40017,025.002883,600
174,400 – 379,15042,449.0033174,400
More than 379,150110,016.5035379,150

Head of Household

Taxable IncomePayPercentage
of Excess
Of Amount Above
Less than $12,150N/A10%$0
12,150 – 46,2501,215.001512,150
46,250 – 119,4006,330.002546,250
119,400 – 193,35024,617.5028119,400
193,350 – 379,15045,323.5033193,350
More than 379,150106,637.5035379,150

Personal and Dependency Exemptions

Exemptions per person: $3,700

The phase-out for personal exemptions and itemized deductions has been eliminated through 2012.

Standard Deductions*

Head of Household
Joint *Extra Deduction if Blind or over 65
Head of Household

Key Tax Rules

Kiddie Tax Rules

The Kiddie Tax rules require the unearned income of a child or young adult be taxed at the greater of the child’s or parents’ marginal tax bracket once the unearned income exceeds $1,900. Under the Kiddie Tax rules, the first $950 in unearned income is not subject to tax. The next $950 of unearned income is taxed at the child’s rate (typically 10%). Then, any unearned income of more than $1,900 is taxed at the parents’ marginal rate. The Kiddie Tax rules apply to unearned income of the following:

  • A child under age 18,
  • An 18-year-old whose unearned income does not exceed one-half of his or her support, and
  • A 19- to 23-year-old full-time student whose income does not exceed one-half of his or her support.

Individual Dividend Rates

Maximum RateRate for Qualified Dividends*
Taxpayers Above the 15% Bracket35%15%
Taxpayers in the 15% Bracket and Below15%0%

*”Qualified dividends” generally means dividends received during 2011 from domestic corporations. The investor must own the stock for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date. These periods are doubled for preferred securities.

Capital Gains Tax Rates

Holding PeriodMaximum Rate*
Assets Held One Year or Less35%
Assets Held More than One Year and Sold by
Individuals in the 25% Tax Bracket or Above
Assets Held More than One Year and Sold by
Individuals in the 15% Tax Bracket or Below
*The gains are included in determining tax bracket.

Individual Retirement Accounts

Generally, contributions are fully deductible unless you or your spouse are covered by a workplace retirement plan, in which case the following deduction phase-outs apply.

Traditional IRA: Deductability of Contributions

StatusAdjusted Gross IncomeDeduction
Married Filing Jointly*$0 – 89,000
89,000 – 109,000
More than 109,000
$5,000 Maximum
Single$0 – 56,000
56,000 – 66,000
More than 66,000
$5,000 Maximum
For Noncovered Spouse**$0 – 167,000
167,000 – 177,000
More than 177,000
$5,000 Maximum
*If neither individual or spouse is covered by a plan, you can deduct up to $5,000 each or MAGI, whichever is less.
**Applies to individuals whose spouses are covered by a workplace plan but are not covered themselves.

Roth IRA: Eligibility of Contributions
Contributions made to a Roth IRA are not deductible, unlike contributions made to a traditional IRA, and there is no age restriction on making contributions. An individual may contribute up to $5,000 to the Roth IRA, subject to income phase-out limits.

StatusAdjusted Gross IncomeDeduction
Married$0 – 169,000
169,000 – 179,000
More than 179,000
$5,000 Maximum
Single$0 – 107,000
107,000 – 122,000
More than 122,000
$5,000 Maximum

Catch-Up Contributions
If you have either a traditional or a Roth IRA and attain age 50 or older during the tax year, an additional $1,000 may be contributed.

IRA & Roth Contribution

Maximum ContributionCatch-up Contribution

Trust and Real Estate Income Tax Rates

If taxable income is:Your tax is:
Not over $2,30015% of taxable income
Over $2,300 to $5,450$345 + 25% of the excess over $2,300
Over $5,450 to $8,300$1,132.50 + 28% of the excess over $5,450
Over $8,300 to $11,350$1,930.50 + 33% of the excess over $8,300
Over $11,350$2,937.00 + 35% of the excess over $11,350

Education Planning

Education Credits

American Opportunity Credit (formerly Hope Credit)*Up to 100% of the first $2,000 and 25% of the next $2,000 to a maximum of $4,000 of expenses; maximum credit is $2,500
Lifetime Learning CreditUp to 20% of the first $10,000 (per taxpayer) of qualified expenses paid in 2011

Student Loan Interest Deduction

Maximum Deduction$2,500
MAGI Phase-Outs
Married Filing Jointly
$106,650 – $136,650
$71,100 – $86,100

Tax Credits

Annual Exclusion for Gifts