401(k). As a general rule, a taxpayer can contribute up to $16,500 tax-free to a 401(k) plan. In addition, taxpayers who are older than 50 years old may contribute an additional $5,500 for a maximum tax-free contribution of $22,000. Significantly, the amount contributed lowers taxable income.
IRA. Taxpayers who do not have a 401(k) may make a deductible contribution to a traditional IRA. However, the contribution limits are lower. For taxpayers 50 years or younger, the contribution limit for 2011 is $5,000. For taxpayers older than 50 years old, the contribution limit for 2011 is $6,000. out of your taxable income. Nonetheless, taxpayers are generally well-advised to contribute pre-tax income into a retirement account where it can grow tax-free rather than paying taxes on that money.
Gifts. The gift-tax exemption is currently at an all-time high of $5 million ($10 million for married taxpayers). Consequently, high-wealth individuals may be well-advised to consider making gifts this year before the gift-tax exemption reverts to $1 million after 2012.
Charitable Giving. Consider donating appreciated stock or other assets to charitable organizations that accept such donations. Such a donation will result in a charitable deduction equal to the fair market value of the donated asset. This means that taxpayers can deduct the full value of the donated property without incurring a tax liability on the appreciation.
Charitable Contributions Directly from IRA. This is the last year in which taxpayers aged 70½ and older will be permitted to make charitable contributions straight out of their IRAs. This method of charitable giving could be advantageous for taxpayers with IRAs that have appreciated substantially over time or for taxpayers who do not need the required minimum distributions for living expenses for three reasons. One: tax is avoided on appreciation. Two: the taxpayer is entitled to a charitable deduction. Three: the required minimum distribution is not included in the taxpayer's income for the year.
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