2014 End of the Year Tax Tips

As year-end approaches, it is time to focus on last-minute moves you can make to save taxes – both on your 2014 return and in future years. To get you started, we have outlined a few money-saving ideas that you may want to put into action before the end of this year. As a reference, below is a table of the ordinary income tax rates for Married Filing Jointly taxpayers for 2014.

Charitable giving of stocks

If you have appreciated stock or mutual fund shares that you have held for more than one year and you plan to make significant charitable contributions before year-end, keep your cash and donate the stock or mutual fund shares instead. You will avoid paying tax on the appreciation, but will still be able to deduct the donated property’s full value. However, if the shares are now worth less than when you acquired them, sell them, take the loss, and then give the cash to the charity.

Standard deduction for 2014

If your total itemized deductions such as mortgage interest, real estate taxes, and charitable deductions each year are close to these amounts, you may be able to fully leverage the benefit of your deductions by bunching them into every other year. This allows you to deduct your itemized deductions in the years they are high and claim the standard deduction the following year, when your itemized deductions are low. For example, you may consider waiting to pay your 2014 real estate taxes until 2015. Real estate taxes are due by March. If you pay your 2014 and 2015 real estate taxes during 2015 you would be able to get the benefit of two payments in one year and potentially reduce your 2015 tax liability.

Phase Out of Itemized Deductions and Personal Exemptions

Single filers with adjusted gross income (AGI) in excess of $254,200 or couples who are married filing jointly and have AGI in excess of $305,050 will also face phaseouts of their deductions and personal exemptions. The phaseout of the personal exemption means for every $2,500 of AGI (or portion thereof) above $254,200 ($305,050 for married couples filing jointly), the $3,950 per-person personal exemption will be reduced by 2%. For married couples, personal exemptions will be fully phased out once their AGI exceeds $427,550, or for single filers if AGI exceeds $376,700. The phaseout of itemized deductions could also raise tax bills for higher income earners by reducing the tax benefit of the mortgage interest, state income and sales tax, home office, and certain other itemized deductions. This limitation reduces the value of itemized deductions by 3% of the AGI above $305,050 for couples, and $254,200 for single filers-to a maximum reduction of 80% in value. Itemized deductions for certain medical expenses, investment interest, and for casualty, theft, or gambling losses are exempt from the phaseout.

Long term capital gain rate for 2014

Surtax for high income earners

High income earners have other factors to keep in mind when mapping out year-end plans. You will have to take into account the 3.8% tax surtax on unearned income. Unearned income is defined as interest, dividends, non-business capital gains, annuities royalties, and passive rental income. Also, some taxpayers will be subject to the additional 0.9% Medicare tax which applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately). Congress has yet to act on a host of tax breaks that expired at the end of 2014. Some of these breaks may be retroactively reinstated and extended, but Congress may not decide their fate until either the end of 2014 or the beginning of 2015. These breaks include:

For Individuals:

• The option to deduct state and local sales and use taxes
• The above the line deduction for higher education expenses
• Tax free IRA distributions for charitable purposes by those 70-1/2 & older
• The exclusion for up to $2 million of mortgage debt forgiveness on a principal residence

For Businesses:

• 50% bonus first year depreciation for most new machinery, equipment & software
• The $500,000 annual expensing limitation
• The research tax credit
• The 15 year write-off for qualified leasehold improvement property
• Gift and estate tax exclusion

During 2014 the maximum gift and estate tax exclusion is $5.34 million. The annual gift tax exclusion is $14,000. For 2015 the annual gift tax exclusion remains the same and the lifetime maximum gift and estate tax exclusion increases to $5.43 million.

Health Savings Accounts

If you become eligible to make health savings account (HSA) contributions in December of this year, or you have not contributed to an HSA during 2014, you can make a full year’s worth of deductible HSA contributions. Individuals can contribute up to $3,300 and families can contribute up to $6,550. Contributions for the 2014 calendar year can be made until April 15, 2015.

Finally, as a result of Obamacare additional reporting regarding health insurance will be required. We will be requesting additional information relative to your health insurance. Please retain any information you receive from your insurance company or employer. We will include the exact information in our tax checklist.

Other than the tax extenders we do not foresee any other changes effecting your 2014 taxes. However we will continue to monitor the progress (or lack thereof) that congress is making. In the mean time please contact us if you want to discuss specific issues or if we can be of assistance.

Best regards,

Lee Anne Acosta Founder