Well, it may be too late for 2010, but this is just the reason why you should consider planning for 2011 now. Sure The thing is, that it can be a little like trimming your waist line— it’s not as easy as simply saying it. With a little bit of work and planning, though, it can be done. Consider these ideas:

#1…Know your tax liability. Tax planning without an accurate picture of where you currently are can be futile and often end up costing you more tax in the long run. I have run into several families who find a tax break for the current year, but it incurs more tax for future years. So take a quick estimate of your income and the tax bracket you expect to be in this year as well as NEXT YEAR.  Case in point: if you expect to be in a higher bracket this year than you expect to be in the following, you might be able to defer income until next year and/or bunch qualified itemized expenses such as medical, investment, tax preparation, etc. into one year to reduce the taxes you pay this year—or vice versus.

#2…Since we are discussing the future; consider the possibility of higher taxes in years to come. Take, for instance, capital gains tax. 2011 and 2012 may be the last years we see a 15% long-term capital gains rate. Talk with your professionals about the idea of selling investments this year that may result in large gains. And on the flip side—don’t forget to look at your losing investments for tax harvesting. Capital losses offset capital gains 100%. Or, up to $3,000 of losses can be applied toward lowering your income and the remainder can be carried forward for future years.

#3…Think retirement. Uncle Sam gives you incentive to save for your own future by contributing to a retirement plan. If you have a 401(k), 403(b), IRA, Simple, Sep, etc; every dollar you put in the plan will be deducted from your Adjusted Gross Income. And if you are a high-income professional, an independent consultant or self-employed, you have the potential to shelter up to $195,000 individually in a retirement plan. This means $195,000 will be subtracted right off the top of your taxable income.

#4…Think retirement, again. Roth IRA’s are retirement savings vehicles that allow assets to grow tax free and be distributed tax free after age 59 ½; however, many high income earners are not able to take advantage of them. But you can convert to one again this year. Consider contributing to an IRA and then converting it to a Roth in order to take advantage of this savings vehicle.

#5…Drill, baby, drill— take into account alternative investments that could help minimize your tax bill. For instance, Congress has provided tax incentives to stimulate domestic natural gas and oil production financed by private sources. Section 263 of the tax code allows investors to deduct up to 100% of the intangible expenditures of drilling, which is typically 65-80% of the well, during the year the investment was made. Also, tangible drilling costs are 100% tax deductible and may be deducted as depreciation over a seven-year period.

#6…Do you know what tax credits are available this year? Don’t overlook this area. These credits just might fit in with your life goals. For example, installing energy efficient upgrades to your home such as qualifying windows, doors, air conditioners, etc. can get you a tax credit. Or how about paying for higher education—they can land you one as  well.

#7… Many of the families we work with have charitable inclinations and want to pass this legacy to their children and grandchildren. One idea is to establish a donor-advised fund which would operate as an independent charity by having no annual distribution requirements, starting with as little as $5,000 and having very low administrative costs. You can deduct the amount you contribute and name family members as directors for the funds. For more information on Donor Advised Funds, visit our online learning center at www.kennedy-financial.com and read Giving More.

Keep in mind as you consider these tax trimming ideas, Kennedy Financial Services does not offer tax advice and, that you should work closely with your tax professionals to discuss your unique situation. Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.