If you’re self-employed, you may be able to set up a retirement plan that allows you to make much larger contributions than you could make as an employee. Plus, if you set up one of the following plans by Dec. 31, 2012, you can make deductible 2012 contributions until the 2013 due date of your tax return:

1. Profit-sharing plan. This allows discretionary contributions and flexibility in plan design. The 2012 contribution limit is $50,000 ($55,000 for taxpayers age 50 and older).

2. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. So you may be able to contribute more to a defined benefit plan than to a profit-sharing plan. The maximum future annual benefit toward which 2012 contributions can be made is generally $200,000.

Various caveats and limits apply, so contact us for details while there’s still time to set up a plan for 2012.

Available as a free download to Apple® or Android™ devices, the NetClient CS mobile app offers on-the go access to the services and content we have made available. You can access your tax returns and other documents pushed to NetClient CS by us. This convenient app is a mobile extension of our NetClient CS client portal services—making it even easier for you to connect with us and to have access to it anywhere, anytime.

Publicly traded stock and other securities you’ve held more than one year are long-term capital gains property, which can make one of the best charitable gifts. Why? Because you can deduct the current fair market value and avoid the capital gains tax you’d pay if you sold the property.

Donations of long-term capital gains property are subject to tighter deduction limits — 30% of adjusted gross income (AGI) for gifts to public charities, 20% for gifts to nonoperating private foundations. In certain, although limited, circumstances it may be better to deduct your tax basis (generally the amount paid for the stock) rather than the fair market value, because it allows you to take advantage of the higher AGI limits that apply to donations of cash and ordinary-income property (such as stock held one year or less).

Don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

By projecting your business’s income for this year and next you can determine how to time income and deductions to your advantage.

Typically, it’s better to defer tax. You can do so by:

• Deferring income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services. But don’t let tax considerations get in the way of making sound business decisions.
• Accelerating deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. But consider the alternative minimum tax (AMT) consequences first. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

In 2012, taking the opposite approach might be better. If it’s likely you’ll be in a higher tax bracket next year, accelerating income and deferring deductible expenses may save you more tax. And, because individual income tax rates are scheduled to go up in 2013, if your business structure is a flow-through entity, you may face higher rates even if your tax bracket remains the same.

Congress may, however, extend current tax rates for some or all taxpayers. Keep a close eye on Washington as year end approaches so you can adjust your timing strategy as needed if tax law changes do occur.

President Obama has been reelected, the Senate will remain in the hands of the Democrats (but without a filibuster-proof supermajority) and the House will continue to be controlled by the Republicans. In other words, the political makeup of Washington will be about the same in 2013 as it is now. As a result, it’s still very uncertain what will happen with tax law changes.

When it comes to tax law, Congress and the president have much to address, including tax breaks that expired at the end of 2011 as well as the rates and breaks that are scheduled to expire at the end of this year.

The “lame duck” session is scheduled to begin next week, but Congress will soon break again for Thanksgiving. How long it will be in session from after Thanksgiving through the end of the year is up in the air.

It’s still unclear what Congress will try to accomplish in the lame duck session — and what they’ll punt to next year. (In terms of the latter, tax law changes could be made retroactive.)

The lack of change in the political makeup of Washington could make it very difficult to pass tax legislation, considering how far apart the parties are on what should be done. Yet now that both parties know the outcome of the Nov. 6 elections, they may be more willing to compromise.

Whatever happens, it could have an impact on your year end tax planning. So keep an eye on Congress before implementing year end strategies.

In recent years, restricted stock has become a popular form of incentive compensation for executives and other key employees. If you’re awarded restricted stock — stock that’s granted subject to a substantial risk of forfeiture — it’s important to understand the tax implications.

Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes based on the stock’s fair market value (FMV) when the restriction lapses and at your ordinary-income rate.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly before income would otherwise be recognized. Why? Because the election allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

There are some disadvantages of a Sec. 83(b) election:

1. You must prepay tax in the current year. But if a company is in the earlier stages of development, this may be a small liability.

2. Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or its value decreases. But you’d have a capital loss when you forfeited or sold the stock.

If you’re awarded restricted stock before the end of 2012 and it’s looking like your tax rate will go up in the future, the benefits of a Sec. 83(b) election may be more likely to outweigh the potential disadvantages.

The long-term capital gains rate is currently 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate. But the 0% rate is scheduled to expire after 2012. To lock it in, you may want to transfer appreciated assets to adult children or grandchildren in one of these tax brackets in time for them to sell the assets by year end.

Before acting, make sure the recipients you’re considering won’t be subject to the “kiddie tax.” This tax applies to children under age 19 as well as to full-time students under age 24 (unless the students provide more than half of their own support from earned income). For children subject to the kiddie tax, any unearned income beyond $1,900 (for 2012) is taxed at their parents’ marginal rate rather than their own, likely lower, rate. So transferring appreciated assets to them will provide only minimal tax benefits.

It’s also important to consider any gift and generation-skipping transfer (GST) tax consequences. You can exclude certain gifts of up to $13,000 per recipient in 2012 ($26,000 per recipient if your spouse elects to split the gift with you or you’re giving community property) without using up any of your lifetime gift tax exemption.

The GST tax generally applies to gifts made to people more than one generation below you, such as your grandchildren. This is in addition to any gift tax due. But annual exclusion gifts are generally exempt from the GST tax, so they also help you preserve your GST tax exemption for other transfers.

Finally, keep an eye on the Nov. 6 elections and Congress — it’s possible the 0% rate could be extended beyond 2012 or even expanded to include more taxpayers.

If you have a traditional IRA, you might benefit from converting all or a portion of it to a Roth IRA. A conversion can allow you to turn tax-deferred future growth into tax-free growth. It also can provide estate planning advantages: Roth IRAs don’t require you to take distributions during your life, so you can let the entire balance grow tax-free over your lifetime for the benefit of your heirs.

The downside of a conversion is that the converted amount is taxable in the year of the conversion. But there are a couple of reasons why 2012 may be the right year to make the conversion and take the tax hit:

1. Saving income taxes. Federal income tax rates are scheduled to increase for 2013 and beyond unless Congress extends current rates or passes other rate changes. So if you convert before year end, you’re assured of paying today’s relatively low rates on the conversion. In addition, you’ll avoid the risk of higher future tax rates on all postconversion growth in your new Roth account, because qualified Roth IRA withdrawals are income-tax-free.

2. Saving Medicare taxes. If you convert in 2012, you don’t have to worry about the extra income from a future conversion causing you to be hit with the new 3.8% Medicare tax on investment income, which is scheduled to take effect in 2013 under the health care act. While the income from a 2013 (or later) conversion wouldn’t be subject to the tax, it would raise your modified adjusted gross income (MAGI), which could cause some or all of your investment income in the year of conversion to be hit with the Medicare tax.

Likewise, you won’t have to worry about future qualified Roth IRA distributions increasing your MAGI to the extent that it would trigger or increase Medicare tax on your investment income, because such distributions aren’t included in MAGI. While traditional IRA distributions won’t be subject to the Medicare tax, they will be included in MAGI and thus could trigger or increase the Medicare tax on investment income.

Many businesses may benefit from purchasing assets by Dec. 31 to take advantage of depreciation-related deductions that are scheduled to either disappear or become less favorable in 2013:

Bonus depreciation. For qualified assets acquired and placed in service through Dec. 31, 2012, this additional first-year depreciation allowance is, generally, 50%. Among the assets that qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. With a few exceptions, bonus depreciation is scheduled to disappear in 2013.

Section 179 expensing. This election allows a 100% deduction for the cost of acquiring qualified assets, and it’s subject to different rules than bonus depreciation. On the plus side, used assets can qualify for Sec. 179 expensing. On the minus side, a couple of rules may make Sec. 179 expensing less beneficial to certain businesses:

• For 2012, expensing is subject to an annual limit of $139,000, and this limit is phased out dollar for dollar if purchases exceed $560,000 for the year. So larger businesses may not benefit.
• The election can’t reduce net income below zero. So for businesses that are having a bad year, it can’t be used to create or increase a net operating loss for tax purposes.

The expensing and asset purchase limits are scheduled to drop to $25,000 and $200,000, respectively, in 2013.

These depreciation opportunities, however, bring with them a challenge: Determining whether the larger 2012 deductions will prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules.

In some situations, future deductions could be more valuable. For example, tax rates for individuals are scheduled to go up in 2013, which means flow-through entities, such as partnerships, limited liability companies and S corporations, might save more by deferring the deductions.

Finally, keep an eye on Congress: It’s possible the current versions of these breaks could be extended or even enhanced.

Income tax generally applies to all forms of income, including cancellation-of-debt (COD) income. Think of it this way: If a creditor forgives a debt, you avoid the expense of making the payments, which increases your net income.

Debt forgiveness isn’t the only way to generate a tax liability, though. You can have COD income if a creditor reduces the interest rate or gives you more time to pay. Calculating the amount of income can be complex, but essentially, by making it easier for you to repay the debt, the creditor confers a taxable economic benefit. You can also have COD income in connection with a mortgage foreclosure, including a short sale or deed in lieu of foreclosure.

Under the Mortgage Forgiveness Debt Relief Act of 2007, homeowners can exclude from their taxable income up to $2 million in COD income ($1 million for married taxpayers filing separately) in connection with qualified principal residence indebtedness (QPRI). But the exclusion is available only for debts forgiven (via foreclosure or restructuring) through 2012.

QPRI means debt used to buy, construct or substantially improve your principal residence, and it extends to the refinance of such debt. Relief isn’t available for a second home, nor is it available for a home equity loan or cash-out refinancing to the extent the proceeds are used for purposes other than home improvement (such as paying off credit cards).

If you exclude COD income under this provision and continue to own your home, you must reduce your tax basis in the home by the amount of the exclusion. This may increase your taxable gains when you sell the home. Nevertheless, the exclusion likely will be beneficial because COD income is taxed at ordinary-income rates, rather than the lower long-term capital gains rates. Plus, it’s generally better to defer tax when possible.

So if you’re considering a mortgage foreclosure or restructuring in relation to your home, you may want to act before year end to take advantage of the COD income exclusion while it’s available.