Alfred A Cohen, CPA

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December, 2014

 

As 2014 draws to a close, there is still no clear answer for whether and how Congress will deal with the nearly 60 “extender” tax provisions—i.e., temporary provisions that have been routinely extended on a one- or two-year  basis but were allowed to expire at the end  of 2013. For businesses, these tax breaks  include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation (Section 179); the research tax credit; and the 15-year write-off for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. For individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.

 Higher-income-earners have unique concerns to address when mapping out year-end plans. They are still subject to the 0.9% Medicare surcharge and the 3.8% surcharge on certain unearned income.

The Affordable Care Act went into effect in 2014 for individuals. This act requires all taxpayers to be covered by health insurance or be subject to a penalty. Coverage can be obtained from your employer, a health insurance provider or the Health Exchange. If you plan to purchase health insurance via the Exchange remember your subsidy is based on your income and if coverage is offered by your employer you are not eligible for subsidies.

Year-End Tax-Planning Moves for Businesses & Business Owners 

·         Although the business property expensing option (Section 179) is greatly reduced in 2014, don't neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.

Year-End Tax Planning Moves for Individuals 

·         Depending on your tax bracket consider converting Traditional IRA’s to Roth IRA’s. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014. 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, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can void the transaction by recharacterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.

·         If you anticipate a lower tax bracket in 2015 consider accelerating itemized deductions. Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you do not pay the credit card bill until after year end.

·         Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015—the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015—bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.

·         Review the amount you set aside for 2015 in your employer health flex spending  and/or dependent care  accounts. This is important if you set aside the wrong amount in 2014. Remember if your plan allows, you are able to carryover unused health flex spending to the following year.

·         Review realized stock gains for 2014. Consider realizing losses before year end.

 

These are some of the year end steps that can be taken to minimize taxes. If Congress reinstates expired tax breaks watch our web site for the latest information to insure you do not miss out on any tax saving opportunities.

Happy Holidays

 

 

 

 

 

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