The Driscoll Group, Inc | Jacksonville, FL

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.

2012 Income Tax Changes

Americans will not see rate changes on their taxes for 2012 due to the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17, 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:

However, be aware that many changes will occur if nothing is done to extend the cuts.

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 $5,120,000 for 2011 and 2012.

The 2010 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 in 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 $5,120,000 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 the overall estate, plus $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.

* 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 Income	Pay	Percentage of Excess	Of Amount Above
Less than $17,400	N/A	10%	$0
17,400 – 70,700	$1,740.00	15	17,400
70,700 – 142,700	9,735.00	25	70,700
142,700 – 217,450	27,735.00	28	142,700
217,450 – 388,350	48,655.00	33	217,450
More than 388,350	105,062.00	35	388,350

Single Taxpayer
Taxable Income	Pay	Percentage of Excess	Of Amount Above
Less than $8,700	N/A	10%	$0
8,700 – 35,350	$870.00	15	8,700
35,350 – 85,650	4,867.50	25	35,350
85,650 – 178,650	17,442.50	28	85,650
178,650 – 388,350	43,482.50	33	178,650
More than 388,350	112,683.50	35	388,350

Head of Household
Taxable Income	Pay	Percentage of Excess	Of Amount Above
Less than $12,400	N/A	10%	0
12,400 – 47,350	1,240.00	15	12,400
47,350 – 122,300	6,482.50	25	47,350
122,300 – 198,050	25,220.00	28	122,300
198,000 – 388,350	46,430.00	33	198,050
More than 388,350	109,229.00	35	388,350

Personal and Dependency Exemptions

Exemptions per person:

$3,800

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

Standard Deductions*

Single
Head of Household
Joint
*Extra Deduction if Blind or over 65
Single or head of household
All other statuses

$5,950
8,700
11,900

1,450
1,150

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

Individual Dividend Rates
	Maximum Rate	Rate for Qualified Dividends*
Taxpayers Above the 15% Bracket	35%	15%
Taxpayers in the 15% Bracket and Below	15%	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

Description of Capital Gains Tax Rates
Holding Period	Maximum Rate*
Assets Held One Year or Less	35%
Assets Held More than One Year and Sold by Individuals in the 25% Tax Bracket or Above	15%
Assets Held More than One Year and Sold by Individuals in the 15% Tax Bracket or Below	0%

*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
Status	Adjusted Gross Income	Deduction
Married Filing Jointly*	$0 – 92,000 92,000 – 112,000 More than 112,000	$5,000 Maximum Partial None
Single	$0 – 58,000 58,000 – 68,000 More than 68,000	$5,000 Maximum Partial None
For Noncovered Spouse**	$0 – 173,000 173,000 – 183,000 More than 183,000	$5,000 Maximum Partial None

*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.

Status	Adjusted Gross Income	Deduction
Married	$0 – 173,000 173,000 – 183,000 More than 183,000	$5,000 Maximum Partial None
Single	$0 – 110,000 110,000 – 125,000 More than 125,000	$5,000 Maximum Partial None

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 Contribution	Catch-up Contribution
$5,000	$1,000

Trust and Estate Income Tax Rates

If taxable income is:	Your tax is:
Not over $2,400	15% of taxable income
Over $2,400 to $5,600	$360 + 25% of the excess over $2,400
Over $5,600 to $8,500	$1,160 + 28% of the excess over $5,600
Over $8,500 to $11,650	$1,972 + 33% of the excess over $8,500
Over $11,650	$3,011.50 + 35% of the excess over $11,600

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. Reduction for MAGI between $80,000 - $90,000 for single filers and $160,000 - $180,000 for joint filers.
Lifetime Learning Credit	Up to 20% of the first $10,000 (per taxpayer) of qualified expenses paid in 2012. Reduction for MAGI between #52,000 - $62,000 for single filers and $104,000 - $124,000 for joint filers.

*Can be claimed for up to four years.

Student Loan Interest Deduction

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

Tax Credits

Annual Exclusion for Gifts

2011

$13,000

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.