Year-end tax planning – Now is the time to plan!
After December 31st, there are very few options taxpayers have in reducing their 2014 tax liability. As of January 1st, 2015, taxpayers are pretty much limited to making contributions to their IRA and HSA accounts. Your tax person ends of just being a preparer rather than a tax advisor and preparer. Below is a list we believe might benefit you if you do them now.
Gifts to qualified charities
Both cash and non-cash charitable contributions are itemized deductions and are “win-win” situations for you as the taxpayer as well as the charity. For non-cash donations, please know that the IRS requires further documentation if the value of the donated goods exceed $500. The IRS needs a description of the donated items, name and address of the charity, the date of the donation and the method used in determining the value, which is usually thrift shop value. Get in the garage and bag up some “stuff” before year-end.
Setting the maximum aside for your retirement
Contributions to your employer’s retirement plan are excluded from your taxable income. The 2014 contribution limit is $17,500; the catch-up limit for workers over 50 is $5,500. This is like paying yourself and not the IRS. See your payroll department to make sure you are up to the max. If not do as much as you can these last two pay periods.
Identify the losers in your investment portfolio and consider selling them
You may be able to off-set investment gains by identifying investment losses and selling them. For tax purposes, short term losses are netted and short term gains and long term losses are netted against long term gains. You may be better able to swallow a loss if you know there are tax benefits. We have already taken chips off the table, but if you want to do more, please let us know.
Paying educational expenses early
If you have a child in college, the spring semester bill is probably not due until January, but consider paying it in December and it may be deductible. It may be beneficial to borrow short-term if you qualify for a deduction.
A note of gift taxes
You can make tax-free gifts of $14,000 per recipient for 2014. You and your spouse can give up to $28,000 per recipient. Also, medical and educational expenses for another person may be unlimited tax-free gifts if paid directly to a medical or educational institution. If your kids need medical cost help—now is the time.
Please give us at All Star Financial a call if you want to discuss any specific year-end tax planning strategies which may be unique to your circumstances.
Have a great Holiday Season!
Dave and the All Star Team