Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. And even if there's no major tax legislation in the immediate future, Congress will still have to grapple with a host of thorny issues next year, such as whether to once again “patch” the alternative minimum tax, what to do about the post-2012 expiration of the Bush-era income tax cuts, and the expiration of favorable estate and gift rules for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.

Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress.

• Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year.
• Make a full year’s worth of deductible HSA contributions for 2011 if you become eligible to make contributions in December.
• Realize losses on stock while substantially preserving your investment position. For example, sell the original holding, then buy back the same securities at least 31 days later.
• Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill. These include child tax credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest.
• If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional IRA into a Roth IRA if eligible to do so.
• If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value; as a result, you may wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, by transferring the converted amount from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer.
• Arrange with your employer to defer a bonus that may be coming until 2012.
• Consider using a credit card to prepay expenses to generate deductions for this year.
• If you expect to owe state and local income taxes, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2011 if doing so won't create an alternative minimum tax (AMT) problem.
• Take an eligible rollover distribution from a qualified retirement plan before the end of 2011 if you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won't sufficiently address the problem.
• 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, miscellaneous itemized deductions, and personal exemption deductions.
• Apply a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
• If you are a homeowner, make energy saving improvements to your residence, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner.
• Consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses. Generally, the deduction is allowed for qualified education expenses paid in 2011 in connection with enrollment at an institution of higher education during 2011 or for an academic period beginning in 2011 or in the first 3 months of 2012.
• You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
• You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
• Purchase qualified small business stock (QSBS) before the end of this year. There is no tax on gain from the sale of such stock if it is (1) purchased after September 27, 2010 and before January 1, 2012, and (2) held for more than five years.
• If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee.
• Take required minimum distributions from your IRA or 401(k) plan if you have reached age 70 ½.
• You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $13,000 in 2011 to an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.