It is time to consider your end of the year tax plans. The laws for 2014 have not been finalized yet, however most analysts are expecting the expiring provisions to reinstate for 2014 and 2015.
A few of those provisions include:
- Tuition and fees deduction: this is an above the line deduction for up to $4,000 of qualifying education expenses.
- State sales tax deduction: this is a deduction you can take in lieu of a state income tax deduction on Schedule A.
- Charitable IRA transfers: where taxpayers ages 70 ½ or older can make direct transfers to charities of up to $100,000 from their IRA.
The tax rates are not expected to change in 2015, though due to time-value of money, most people will benefit by accelerating write-offs in 2014 and deferring income to 2015. Here are a few ways to accelerate your write-offs:
- State & Local Income Taxes: if you make estimated payments or expect to owe state income tax, we recommend making your estimated payment by December 31st; doing so will allow you to take the deduction for taxes paid in 2014 instead of 2015.
- Donations: You can make charitable contributions that are planned for 2015 in 2014. As long as the payment is made or mailed by December 31st, it qualifies. One strategy would be to charge a donation on your credit card, that way you can claim the deduction in 2014 while deferring the cash payment to 2015.
- Medical Expenses: If you have reached 10% of your AGI in medical expenses (7.5% for those over 65) take advantage of qualified elective procedures in 2014.
- Mortgage Interest: you could make your January 2015 mortgage payment early and deduct 13 months of mortgage interest in 2014. However in 2015, unless you use the same strategy, you will only have 11 months of interest to deduct.
These four strategies really only help you if you can itemize deductions. If you just barely qualify to itemize in 2014, using these strategies should increase your itemized deductions in 2014, but be aware they may cause you to revert to the standard deduction in 2015. The 2014 standard deduction will be $12,400 (MFJ), $13,600 (MFJ over 65), $6,200 (Single), $7,750 (Single over 65), and $9,100 (HOH).
For those of you who would like to accelerate you state and local income tax deductions be aware if you are in the AMT. There is an add back of state and local income taxes for AMT so accelerating your deduction will not help you at all. Also exercising incentive stock options will cause the discount to hit AMT unless you sell the shares by December 31st.
Changes for 2015
The limit on retirement contributions will increase in 2015 to $18,000 or $24,000 if 50 or older. The phaseout of AGI for Roth IRA contributions will be $183,000 to $193,000 for couples and $116,000 to $131,000 for singles. The phaseout of AGI for regular IRA’s will be $98,000 to $118,000 for couples and $61,000 to $71,000 for singles.
Make sure you consult with your tax advisor for any tax planning considerations, and we will do our best to let you know of any changes in the law as they occur. Happy Planning!