Time for Year End Tax Planning

Michael Wiener, E.A.

Before you know it, the holidays will be upon us and the new year of 2015 will be here. It is definitely time to start looking at year-end tax strategies.

But year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these may be retroactively reinstated and/or extend at the very end of the year (and possibly not until next year) or they may not be reinstated at all. For individuals, these tax breaks include: the option to deduct state and local sales taxes instead of state and local income taxes (especially important to Florida since it has no income tax); the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those 70 1/2 or older; and the exclusion for up to $2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year include: the 50 percent bonus first year depreciation for most new machinery, equipment, and software; the 15-year write off for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

High-income earner have unique concerns when mapping out year-end plans. They need to be aware of the 3.8 percent surtax on certain unearned income (the Net Investment Tax) and the 0.9 percent Medicare tax (the HI) on wages in excess of $200,000 ($250,000 for married couples filing jointly).

There are certain actions that you may want to consider under current tax rules that may help you save tax dollars if you act before the year end. Of course these are not all inclusive and they may not apply to your particular tax situation.

• Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This may allow you to take larger deductions that would be subject to “phase-out” rules such as child tax credits, higher education credits, and student loan interest deductions.
• Consider using a credit card to pay deductible expensesbefore the end of the year. This will increase your 2014deductions even if you don’t pay your credit card until nextyear.
• If you have to pay state income taxes, consider makingestimated taxes to that state before the end the year topull that deduction into 2014. You might want to consider accelerating other deductions as well such as property taxes,miscellaneous itemized deductions and employee business expenses. A word of caution here. Many of these deductionsare subject to Alternative Minimum Tax (AMT) which mayjust add to the taxes you are trying to avoid.
• Realize losses on stock while substantially preservingyour investment. You can sell your stock (at a loss) rightbefore the end of the year and buy the same stock back at least 31 days later.

In conclusion I will reiterate that these are just a few examples of tax reduction strategies. By no means are they meant to be all inclusive. Furthermore the applicability of any
tax planning should be on a case by case basis in conjunction with your tax advisor.

If you should have a topic that you would like me to discuss or if you should have a question, please feel free to call 239.403.4410 or e-mail me at mike@cctaxandaccounting.com.

An enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics