12 ways to whittle your 2011 tax bill

Between holiday shopping, parties, concerts and gift wrapping, make room for one more task: whittling down your 2011 tax bill.

A number of smart moves can save a bundle in taxes, but you’ll have to act quickly. Just about all of these maneuvers come with a year-end deadline.

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“You don’t want to realize next April that you could have saved yourself money if you had only focused before the end of the year,” says Neil Becourtney, a partner at the tax advisory firm J.H. Cohn.

So skip a holiday lunch or postpone a trip to the mall. Here are a dozen moves that are worth your attention:

Time your income and deductions: In typical years when tax rates are stable, advisers recommend deferring as much income as possible to the next year, to postpone paying part of your income taxes. But with Congress and President Obama still squabbling over whether to extend the Social Security payroll tax cut for another year and how to pay for it, tax rates for next year are still an open question.

Given this uncertainty, taxpayers’ best move this year may be to avoid manipulating their income and focus more on accelerating deductions into this year to lower their 2011 tax bills, says Tim Steffen, director of financial planning at Robert W. Baird. For example, prepay orthodontist costs, or don’t wait until next year to pay your 2011 state and local tax bill.

Calculate your AMT: There is an exception to this advice, however. If you pay under the alternative minimum tax, a parallel tax system triggered by high deductions relative to income, you’ll generally want to defer deductions. That’s because most deductions aren’t allowable under the AMT, says Alan Kufeld, principal at Rothstein Kass.

Give wisely: Before you cut a year-end check to your favorite charity, consider giving shares of appreciated stock. You get a deduction for the value of the donated shares, and you won’t owe capital gains taxes on the appreciation. If you bought the stock for $100 and it’s now worth $200, you’re getting a $200 deduction on a contribution that cost you half that.

Keep the rules in mind, however: Contributions are deductible only if you itemize your deductions. The deductions can be used to offset up to 50 percent of your adjusted gross income, or 30 person if you’re giving appreciated assets.

Lock in losses: If you’re sitting on a few investment losses, don’t sweat. “Losses can actually be assets from a tax perspective,” says Matt McGrath, an adviser in Coral Cables, Fla.

If you sell, your losses can offset capital gains realized in the same year. Losses in excess of gains can be used to offset up to $3,000 of 2011 income. If you still have unused losses, you can use them in future years.

Beware of the wash-sale rule, however. If you sell your stock or fund, you have to wait 30 days before buying back shares of the same investment. You can, however, try to replicate exposure by buying an exchange-traded fund or a different fund with similar aims.

Pay yourself: Amp up 2011 contributions to your 401(k), IRA or other tax-advantaged retirement accounts. Savings in 401(k)s must be socked away before Dec. 31 to be counted as 2011 contributions. While you have until your tax-filing deadline to contribute to any type of IRA or SEP for the self-employed, the sooner that compounding interest starts working, the better.