2014 Tax Planning Strategies

The IRS has announced that the 2015 filing season will commence on January 20, 2015. However, the March 15th and April 15th deadlines to file business and individual tax returns respectively, are mandated and remain in place. Anyone can request an automatic extension to file their tax returns but must still pay any outstanding taxes by the respective due dates. Congress decided, at the last minute, to extend certain individual and business tax provisions to assist taxpayers in reducing their tax liabilities for the 2014 tax season.

2014 Extended Provisions

For individuals, most notable provisions extended are:

  •  $250 educator deduction for qualified expenses
  • Cancelled debt on failed main home mortgages
  • Personal energy credits such as installed windows, doors, boilers etc.
  • Local sales taxes in lieu if state and local taxes deductions
  • $4,000 maximum tuition and fees deduction
  • IRA distribution deductions to charities
  • Deduction for qualified mortgage insurance premiums
  • Contributions of real property for conservation

For businesses, most notable provisions extended are:

  • Increased section 179 (write-off) deduction for qualified business assets
  • Increased qualified business stock gain exclusion
  • Section 179 deductions (write-off) for retail, restaurant and leasehold improvements
  • Shorter qualified real property recovery period from 39 to 15 years
  • Research and development credit
  • The Work Opportunity credit, and
  • Competing M-1 instead of M-3 on corporate  tax returns

New for Individuals:

ABLE Act:  New for 2014. Also known as the Achieve a Better Life Experience Act, this act was established for individuals or families to support themselves or dependents.

accounts can be established for eligible persons who are:

  • Blind or disabled before age 26
  • Eligible for SSI or SSDI
  • Eligible after a disability certificate is filed with IRS
  • Each Eligible person is limited to one ABLE account
  • Total annual contributions are limited to the gift tax exclusion ($14,000 for 2014 and 2015)
  • Aggregate contributions subject to the state limit for §529 plans
  • ABLE accounts can be rolled over into other ABLE account for the same person or into an ABLE account for a sibling who is and eligible person

Distributions are tax-free if used for the benefit of a person with a disability and related to the disability.

Eligible Expenses include:

  • Education, transportation, employment support, health, prevention and wellness costs, assistive technology and personal support services, other IRS approved expenses.
  • Any non-qualified distributions attributable to earnings are taxable and subject to 10% penalty.
  • Upon death, remaining account balance passes to deceased estate or designated beneficiary. Earning s are taxable but no penalty.
  • Contributions by a parent or grandparent are protected in bankruptcy if made 365 days prior to bankruptcy filing.

Inflationary Adjustments:

The 2014 Tax rates for all filing statuses are as follows:

  • Single Taxpayers
  • Married Filing Joint Returns & Surviving Spouses
  • Married Filing Separate
  • Heads of Household, and
  • Estate & Trusts

For more detailed information on the tax rates, click on 2014 INFLATIONARY ADJUSTMENTS.

Capital Gain Rates.  Capital gain rates aware always the favorite for investors. They get to pay the lower 15% on long term capital gains but there is a small twist going into 2014. Taxpayers whose income fall within the 39.6% tax bracket will be taxed at 20% instead of the regular 15%. It pays to plan effectively to reduce exposure of such gain. For more information on the updated capital gain rates, click on 2014 CAPITAL GAIN RATES.

Net Investment Income Surtax.  For 2014 and later on, higher income taxpayers subject to the 39.6% tax rate could be subject to an additional 3.8% surtax. What makes it especially important is to keep income below the applicable level of exposure to minimize the effect of this surtax. The Net Investment Income Tax targets only investment income. For more information on NIIT, click on the 2014 NET INVESTMENT INCOME TAX

TIP:  Try balancing your portfolios to achieve this result. Because not only will you be subject to the 3.8%, but this increased income could cause capital gains rates to jump from 20% to 23.8%.

Additional Medicare Tax.  Not only are higher income taxpayers subject to the higher tax rates including the 3.8% surtax, but an increased Medicare tax of 0.9% on wages that exceed the above thresholds.

TIP:  Speak to your employer to push any bonuses off until next year or have your employer withhold additional tax from your pay to reduce the effect on your tax return.

Note: Employers are required by law to begin withholding this additional 0.9% tax once income reaches $200,000 during the year. If there are multiple employers, the aggregate of all income received during the year exceeds this threshold. However, taxpayers who are married and file MFJ, and whose combined income falls between $200,000 and $250,000 could apply for a refund of the additional .9% tax withheld on their tax return. (recall MFJ threshold is $250,000)

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 Pursuant to US Treasury Department Regulations, you are advised that any information and advice, including any attachments and enclosures, may not be used for the purpose of (i) avoiding any tax liabilities and or penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to any other person(s) any tax-related matters addressed herein.