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Year-End Tax Planning for 2014

Posted on November 25, 2014

(This is the transcript of a podcast recorded by Robin Tull. Click here to listen.)

CharitableTaxDeductionCan you believe Thanksgiving is only a few weeks away? It’s a time when people naturally begin to think about how fortunate and grateful they are. This year I am reminded how thankful I am for my mother who is 89 years old, living by herself…she has taught me so much over the years how to give back without expecting anything in return. And of course at year end it’s a good time to think about giving back through charitable giving, which is a pillar of year-end tax planning.

Most people know charitable gifts can help reduce your tax bill. To make the most of it, you must remember a few key things:

  1. Make sure it’s an IRS qualified charity or a 501(c)3. You can check GuideStar.org or ChairityNavigator.org for an organization’s status.
  2. You must itemize, so file a long form. And make sure you have proof, like receipts or cancelled checks.
  3. In addition to dollar donations, consider giving away household goods, clothing, or cars. A written receipt is needed for property valued at $250 or more. More than $500 also requires a written description of the item, and more than $5,000 requires an independent appraisal.
  4. Just last week we had two clients decide to donate their stock in a mutual fund; one to their church’s capital campaign program and the other to their favorite charity. The stock had to be held for more than a year, and any capital gains tax on the appreciation of the stock is forgiven. Now that’s a deal!
  5. Remember charitable donations are generally limited to 50% of your adjusted gross income, a rule that applies to all income levels.
  6. More and more of our clients are looking at Donor Advised Funds for the regular giving, so take a look at that option.

Consider making gifts to family members at year-end…you may not get a tax deduction, but you can give up to $14,000 to as many individuals as you like before Dec. 31st without filing a gift-tax return. If you're married, you and your spouse can give up to $28,000 per recipient.

In addition to giving away your money, there are also ways to reduce your tax burden by keeping some of it in places that’s acceptable to Uncle Sam, like your 401(k) or IRA. Putting as much money as limits allow into your retirement account gives the IRS a little less of your income to touch, as the contributions are usually made before taxes are taken out, and of course the earnings will grow tax-deferred. The 2014 limit for 401(k) s is $17,500 per employee. If you are age 50 or older, you can put in an extra $5,500. And if your employer has any kind of matching plan, what are you waiting for? Put in up to that match – it’s free money!

Speaking of workplace benefits, don’t forget medical Flexible Spending Accounts, or FSAs. FSA contributions are made before taxes are calculated, but the kicker is the use-it-or lose it rule, which means you have to use all the money for medical-related expenses before the end of the year. However, the U.S. Treasury did recently announce a change in the use-it-or-lose-it rule, allowing account holders to carry over up to $500 in excess money into the next benefit year…BUT, your company has to take steps to adopt it, so make sure to check with your employer.

Deferring income to the next year is one often overlooked tax strategy. The top tax rate is 39.6% on taxable income of more than $406,750 for single taxpayers and $457,600 for married couples filing joint returns. If your remaining pay will push you into the top tax bracket, or even into the next higher one, defer receipt of money where you can. Ask for any workplace bonuses to be held until January if possible, and hold off selling any assets that will produce a capital gain. If you’re self-employed, don’t send any year-end invoices until after January 1st…and like I mentioned earlier, maximize your retirement contributions to your 401(k) or your IRA.

Do you have a kid in college? If so, try to take advantage of The American Opportunity Tax Credit which is in effect through the 2017 tax year. It is worth up to $2,500 with up to 40% of the new credit refundable, meaning you could get as much as $1,000 back as a tax refund even if you don't owe any taxes. Tuition, fees, and course materials for four years of undergraduate studies are eligible expenses for the current tax year, as well as expenses paid toward classes that begin by March 30th of the next year.

Other year-end strategies to consider are making your January mortgage payment or other property tax payments by Dec. 31st to deduct the interest on your coming tax return. You can also adjust your withholding amounts taken out of your final 2014 paychecks to help ensure you don't over- or underpay Uncle Sam on your next return.

These are just a few suggestions to help you make the most of your hard-earned dollars during 2014. Each person's tax situation is different and we, of course, are not tax specialists. We highly recommend that you consult with your tax advisor before taking any action. As always, feel free to share your thoughts on this subject and use us as a resource, and we wish you a very Happy Thanksgiving!

How can Tull Financial Group help you? Contact us to find out!

This blog article is provided for general information only, and nothing contained in the material constitutes a recommendation for purchase or sale of any security, or investment advisory services. Reproduction of this material is prohibited, and all rights are reserved. Read the full Disclosure.

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