Year-End Tax Planning For 2014

By Cliff Ennico

For most people, the end of December is called “the holidays.” For lawyers, accountants and other financial types, however, it’s called “year-end.”

While most of us celebrate with turkey, egg nog, ugly sweaters and football (often all at once), these folks are working late hours trying to save their clients as much money in taxes as possible before the ball drops in Times Square.

Thanks to the midterm elections, 2014 wasn’t a big year for major changes in the tax law. The basic year-end advice still applies: defer the recognition of taxable income into 2015, and accelerate deductible expenses into 2014. But there are a few other strategies you should think about, for at least a few minutes. Here are some tips:

• Don’t Disappear Over the Holidays. If you read newspapers, you know that Congress is pushing to adopt a 2015 budget bill that will keep the Government running without a shutdown like last year’s. Quite a few individual tax breaks expired at the end of 2013, such as the $250 school teachers’ deduction for school supplies, the deduction for state and local sales taxes, the $500 credit for qualified energy-efficient home improvements, the deduction for qualified home mortgage insurance premiums, and the temporary 100% exclusion of gain from sale of “qualified small business stock.”
• Congress has not as yet extended these tax breaks retroactively, as it has done in past years, but may well do so in the final budget bill. I personally predict the breaks will be extended: the soon-to-be-in-control Republicans will be under tremendous pressure to do lots of extremely popular things taxwise next year in order to stave off Hurricane Hillary in 2016.  So be prepared to do some last-minute deductible spending between Christmas and New Year’s if the breaks are extended.
• Get Yourself Some Health Insurance. The ongoing rollout of Obamacare hits a milestone on December 31. If you (or a dependent) are not covered by a qualified health insurance plan on that date providing for “minimum essential coverage”, and are not exempt from the insurance mandate, you get to pay the “Shared Responsibility Tax” on your 2014 tax return.
• Also, if your 2014 income was between one and four times the 2013 “Federal Poverty Line” (described at http://aspe.hhs.gov/poverty/13poverty.cfm), you may be eligible for a “premium tax credit” by buying insurance through the Obamacare marketplace.
• Embrace Alternative Energy. The temporary 10% credit (with a lifetime cap of $500) for qualified energy-efficient home improvements expired at the end of 2013, but the 30% credit for installing a qualifying solar water heater, solar electric generating unit, geothermal heat pump, or small wind energy property did not (it will remain on the books until the end of 2015.
• Contribute to Your Retirement Plan. You can still deduct contributions to an IRA, 401(k) or other retirement plan, even if the contribution isn’t made until just before you file your 2014 tax return sometime in 2015. Heck, you can even set up a new retirement plan after December 31 and still deduct your contribution in 2014 as long as you make the contribution before you file your 2014 return.
• If you are over age 70-1/2 and are forced to take taxable distributions from your IRA, consider donating up to $100,000 of your IRA funds to charity. The transfer will count toward your “required minimum distribution” for the year, and will not be included in your income as other distributions will.
• Hold On To Your Stock, Unless You Lost Money. Short-term and long-term capital gains rates took a big jump last year because of the 3.8% “net investment income tax” that was part of Obamacare. To avoid the tax, hold onto any stock that appreciated in value during 2014.
• If, however, you lost money on your stock portfolio this year and incurred a capital loss of more than $3,000, consider selling some of your short-term securities before year-end and reduce your loss to $3,000. That way, the short-term gain on the sale will be netted against the excess loss.
• Self-Employment Income. If you are self-employed and use the cash method of accounting, consider delaying year-end billings to defer income until 2015, but remember that if you receive the check before December 31, deferring the deposit does not defer the income. Also, you may not want to defer billing if you think this will increase your risk of not being paid.
• If you have the chance to buy equipment or make other deductible expenses before December 31, do so. Make sure the check is mailed on or before December 31 to take the deduction in 2014.
• Don’t Obsess. Enjoy your holidays. Worry about taxes next year.

Thanks to My Tax “Elves.” I want to thank the accountants, CPAs and other tax advisors who help me with my column each year and make sure I am more or less accurate and up-to-date. They are: Margaret (Peg) O’Donnell (mytopstonecpa@optonline.net); John D’Aquila (johnmdcpa@gmail.com); Russell Abrahms (russ@rlabrahmscpa.com); Paul Piasecki (paul@piaseckicpa.com); and Michael Paolini (jmpcpa@aol.com).

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.