Year End Tax List

By David Chazin

The year may be ending, but Uncle Sam’s payday is still looming a few months away. In order to make sure our Chevron clients are in the best shape possible come tax time, we thought we’d offer a year-end tax list to weather the storm. I hope the tips below prove helpful.

  • Increase contributions to retirement plans. Some Chevron employees may be able to reduce Adjusted Gross Income (AGI) by increasing contributions to retirement plans such as the Chevron 401(k) plan, or any retirement plan your spouse has.


  • Realize losses on stock in any non-retirement accounts. Selling stocks at a loss can offset capital gains and income taxes. It may be advisable for us to meet to discuss any year-end trades you should consider making.


  • Increase your withholding if you are facing a penalty for underpayment of federal estimated tax. Doing so may reduce or eliminate the penalty.


  • If you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or will not sufficiently address the problem, then consider taking an eligible rollover distribution from a qualified retirement plan before the end of 2011. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2011.


  • Increase the amount you set aside for next year in the Chevron flexible spending account if you set aside too little for this year.


  • Take a required minimum distribution (RMD) from your IRA or 401(k) plan if you are age 70½ or older. Failure to take a required withdrawal can result in a penalty of 50 percent of the required amount not withdrawn. Individuals age 70½ or older generally must take the required distribution amount out of their retirement account before the end of 2011 to avoid the penalty. If you turned age 70½ in 2011, you can delay the required distribution to the first quarter of 2012, but if you do, you will have to take a double distribution in 2012 – the amount required for 2011 plus the amount required for 2012, so think twice before delaying 2011 distributions to 2012. Bunching income in 2012 might push you into a higher income tax bracket, or have a detrimental impact on various income tax deductions that are reduced at higher income levels.


  • Make annual exclusion gifts before year-end to save gift tax and estate tax. You can gift $13,000 in 2011 to an unlimited number of individuals free of gift tax. However, you cannot carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.


  • Make energy saving improvements to your primary residence. There are substantial tax credits for energy efficient home improvements such as solar electric panels or solar hot water heaters in 2011 that can save you a lot of money. These tax breaks stay on the books through 2016.


  • Make a nondeductible Roth IRA contribution of up to $5,000 for 2011 and 2012, and up to $6,000 if you are age 50 or older. Contributions to a traditional IRA reduce the amount you may contribute to a Roth IRA. Phase out and eligibility rules are subject to limitations on your adjusted gross income, so double-check to make sure you’re eligible.


  • For Chevron employees with children under age 18, consider contributing to a qualified tuition plan (Section 529 plan) instead. Unlike a Coverdell Educated Savings Account (CESA) there are no AGI limits on contributions to 529 plans. However, distributions of earnings from a 529 plan are tax-free only if used to pay for higher education expenses (college and above). Distributions of earnings from a CESA are tax-free if used to pay for elementary and secondary school expenses, as well as higher education expenses.


  • Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2011, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, in some cases, deductions should be deferred rather than accelerated to keep them from being lost because of the AMT.



    • I’d be happy to sit down with you and discuss some tax-reduction strategies you can take before the New Year. Because I work with many Chevron executives, managers, employees and retirees, I'm very knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my Chevron clients and you can ask them how working with an advisor has helped them.

    Please contact me at (925) 659-0251 with specific questions or to schedule a time to meet in either my San Ramon or Point Richmond office. Or for more information, please visit our website at www.insight2wealth.com.


    David Chazin, Insight Wealth Strategies and Lincoln Financial Advisors Corp are not affiliated with Chevron.