Fully and correctly completed tax organizers are the key to a smooth and successful tax filing season. And while you are focused on your tax situations and getting your documentation together, it is also a good time to sit down and do some year-end tax planning that could save you money this year and going forward.
The basics of year-end tax planning are: To minimize this year’s taxes, you will generally want to postpone income and accelerate deductions. The details of how to do this and how does that apply to your situation can be hard to understand. Additionally due to changes in your income, minimizing taxes this year may not be the best strategy.
If you would like to postpone income, accelerate deductions, and otherwise reduce taxes for 2014 you can consider the following strategies:
The basics of year-end tax planning are: To minimize this year’s taxes, you will generally want to postpone income and accelerate deductions. The details of how to do this and how does that apply to your situation can be hard to understand. Additionally due to changes in your income, minimizing taxes this year may not be the best strategy.
If you would like to postpone income, accelerate deductions, and otherwise reduce taxes for 2014 you can consider the following strategies:
Increase withholding.
Clients with substantial nonwage income in addition to their salary should adjust their withholding for the rest of the year to ensure that it covers their required estimated tax payments to avoid the penalty for failure to make estimated tax payments.
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Marital status.
Marital status.
If you are marrying or divorcing, evaluate how the year-end marital status will affect the tax return. Getting married or divorced during the year? You are treated as having had your Dec. 31 marital status all year. Now is the time to discuss how that will affect your taxes.
Minimize tax on Social Security benefits.
When a Social Security recipient’s MAGI plus 50% of his or her Social Security benefits exceeds certain base amounts, the benefits can be taxable. The MAGI thresholds are $25,000 for single individuals, $32,000 for married taxpayers filing a joint return, and zero for married individuals filing separately. If your income is close to these thresholds you should consider deferring income to avoid the tax on the Social Security benefits.
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Miscellaneous itemized deductions.
Group miscellaneous itemized deductions in one year. Miscellaneous itemized deductions are deductible only to the extent they exceed 2% of your adjusted gross income. You should try to group such expenses in one year to meet the threshold. For example:
· Pay professional dues and job-related tuition in December instead of January to bring them into 2014.
· Prepay certain expenses using a credit card. Contributions to charity and deductible medical expenses are deductible when charged to the client’s credit card, rather than when the client pays the credit card bill (Rev. Rul. 78-38; Rev. Rul. 78-39). Such expenses charged in December will be deductible in 2014, even though the credit card bill is not paid until 2015. More ...
· Prepay certain expenses using a credit card. Contributions to charity and deductible medical expenses are deductible when charged to the client’s credit card, rather than when the client pays the credit card bill (Rev. Rul. 78-38; Rev. Rul. 78-39). Such expenses charged in December will be deductible in 2014, even though the credit card bill is not paid until 2015. More ...
Dispose of passive activities to take advantage of suspended passive losses.
Losses from a passive activity that can’t be realized in a particular tax year because of the passive loss limitations are suspended and carried forward until they can be used. If you are carrying suspended passive losses you might want to dispose of the passive activity before the end of the year to take advantage of those suspended losses. When the passive activity is disposed of, the losses from the year of disposition, including carried- over losses that exceed passive income for the year, are no longer treated as passive losses. More ...
You may be holding appreciated investments, but also lost money on some stock investments in 2014. You may want to consider selling the appreciated investments and offset them with the losses. You need to be aware that long-term capital losses first offset long-term capital gains and that short-term capital losses first offset short-term capital gains. More ...
Convert ordinary income to qualified dividend income.
You may want to consider shifting investments from ones where the income is taxed at ordinary rates, such as bonds, to stocks that pay dividends. If the dividend income is qualifying (received from a domestic corporation or qualified foreign corporation and the taxpayer held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date), the income will be taxed at capital gains rates. More ....
Make Sec. 179 expenditures.
You can elect to deduct currently rather than depreciate the costs of new or used tangible property used in your business over a period of years. Unfortunately, the increased levels that were in effect for Sec. 179 for the past several years have expired. For 2014, the maximum amount that can be expensed is $25,000, and the deduction is phased out when qualifying property placed in service during the year exceeds $200,000. More ...
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