With the beginning of 2012 nearly here, day traders and other investors may be focusing on year-end opportunities to lower their taxes, such as accepting limited losses in a portfolio, according to Forbes contributor Gregg Fisher.

While these issues are relevant at the end of the year, according to Fisher, the tendency to forget about tax planning for most of the year is problematic and can lead to a last-minute rush that results in poorer outcomes than a more comprehensive, long-term approach.

The main point is that most such strategies can be more effective if they are integrated into a trader's strategy over time, whereas attempting to adjust investments, income and other financial considerations at the end of the year may lead to difficulties, rushing and costly mistakes. Specific accounting tips and assistance may be available from a professional firm that can help day traders determine the best way to prepare for tax time, whether that means making end-of-year adjustments or implementing a plan over the course of an entire fiscal year.

These considerations may become more important in the future if capital gains tax rates increase or the tax system is otherwise reformed in a way that increases the burdens on day traders, which is possible. If no legislative action is taken, the capital gains tax rate will increase substantially when its current cut expires.

Avoiding common mistakes with business deductions

When day trading for a living, one common issue is what business expenses traders can actually write off as they relate to their business.

While the current tax code allows business owners to write off any "ordinary and necessary" business costs, FOXBusiness' Bonnie Lee says that the incorrect interpretation of that rule has caused many business owners a great deal of trouble through the years.

One of the first mistakes some people have made is trying to deduct personal expenses under the guise of needing to appear professional for business reasons. Lee says that in one recent case, a news anchor attempted to write off her clothing and makeup purchases. While they may have been used at work, they could also be used for general purposes, making them non-deductible.

In short, Lee says the only way personal expenses can be deducted is if they are used solely for work purposes, and could not be used for other settings, such as a uniform with a company logo - which traders won't have.

For traders, many costs may be shared for both business and personal purposes, such as internet or mobile phone costs. In these situations, she says business owners should keep firm records of their accounts and only deduct use proportionally.

By consulting with an accounting professional to go over their tax records, traders may be able to avoid the time and energy involved in a full IRS audit, and prevent the penalties that may come along with one.

Payroll tax battle at a standstill

Congressional leaders have left Washington, D.C. without reaching a compromise on the payroll tax extension, and it appears that the rate will jump back up 2 percentage points on January 1.

Lawmakers in the Senate passed a 60-day extension to the tax reduction in order to buy more time to work out a compromise, but others in the House refused to sign that bill and instead began packing up for the scheduled break.

Some lawmakers have called for the president to call them back to the nation's capital in order to work on the bill. The president himself has admonished lawmakers for playing what one called 'high-stakes poker.'"

While the payroll tax itself will have little impact on those running their own day trading companies, continued negotiation over the extension of the tax cut could have a significant impact.

In order to pay for the bill, lawmakers have proposed a number of different measures, such as raising the capital gains tax rate or imposing a tax on financial transactions, both of which would have significant negative repercussions. Other proposals would levy an additional tax on those making more than $1 million.

Several economists have said that the failure to extend the tax cut will have significant negative implications for the economy as a whole, which means lawmakers may eventually come to some sort of deal. The increase in payroll taxes from 4.2 to 6.2 percent would cut the biweekly paycheck of the average American by about $40, the Los Angeles Times reports.

Six Year-End Tips to Reduce 2011 Taxes

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.

Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

For more year-end tax information and to access all IRS forms and publications, visit the IRS website at http://www.irs.gov.

The IRS continues to feast on S firms that pay very low salaries to owners

In many cases, S firm owners take low salaries to they can receive the bulk of the corporation's profits as dividends, which are not subject to payroll taxes. IRS and the courts balk at this practice. In a recent case, a CPA took a $24,000 salary in a year when his share of the S firm's profits was around $200,000. A district court agreed with the IRS that his pay was unreasonably low and ruled that the dividends are properly reclassified as salary and are hit with payroll taxes.

(Watson, D.C., Iowa)

IRS Announces 2012 Standard Mileage Rates

WASHINGTON — The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Protect Your Personal Information: The IRS Does Not Initiate Taxpayer Communications through Email

Phishing is a scam typically carried out by unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information. All unsolicited email claiming to be from either the IRS or any other IRS-related components such as the Office of Professional Responsibility or EFTPS, should be reported. Forward the email as-is, to IRS at phishing@irs.gov. Search “phishing” on IRS.gov for additional information.

Little time remains to save on 2011 taxes, MainStreet notes, but there are still some options and accounting tips savvy individuals can explore and use.

For example, because the Internal Revenue Service allows medical expenses above 7.5 percent of an individual's adjusted gross income to be deducted, it may be wise to take care of any medical issues before the end of the year. Refilling prescriptions, attending check-ups, scheduling any doctor visits and exams and other steps can add up. While it may not be worth it for a taxpayer too far below the 7.5 percent threshold to qualify, others could save significantly by paying outstanding medical bills, buying any needed medical supplies and otherwise logging expenses this December.

The source notes individuals can also track their gas mileage when driving to and from medical appointments. It may also be possible to make a monthly insurance payment early, or time the renewal of long-term care coverage.

For those who are planning to deduct their state and local sales taxes on federal returns, rather than income taxes, the source indicates, now maybe a good time to buy a new car. While this might be wasteful for some, those who need one now or will soon can benefit significantly from the deduction. Similarly, it may be wise to purchase any other large and expensive items before the end of this year and the beginning of 2012.

Paying mortgage interest early can be another deductible expense, as long as the payment is received on time. Similarly, charitable donations can be written off, as long as they are properly documented.

Taxpayers should examine overlooked opportunities

Many taxpayers may overpay every year by missing significant deductions and credits, according to Kiplinger, and would benefit from following a few accounting tips.

One of these is the state and local sales tax deduction. When filing federal returns, citizens must choose between taking a deduction for state and local sales taxes or state and local income taxes. For those in states which have no income tax, the choice is made for them, and all that is necessary is to remember to claim the sales tax deduction.

Taxpayers with a choice will generally benefit more from the income tax deduction, according to the source, but may experience an exception if they made a major vehicle purchase or bought homebuilding materials. Such items are expensive, and may push the sales tax deduction higher than the one for income taxes.

Investors and day traders who make their money in the form of capital gains might also benefit significantly more from taking the sales tax deduction, since they may have low incomes in tax policy terms even if the amount they make is comparable to or greater than that typical of salaried workers.

The self-employed who qualify for Medicare have a unique opportunity to deduct the cost of premiums for some Medicare coverage as well as supplemental policies, even if they are not itemizing deductions.

Investors who have their mutual fund dividends automatically invested in further shares often forget to account for their increased tax basis in the fund, according to the source, resulting in greater effective taxes on capital gains when they redeem shares.