Year-end tax tips for individuals

tax-timeNew legislation has brought greater certainty to year-end planning but also created new challenges. Be sure to meet with your ShindelRock tax professional if you have had any major changes during 2014 or are expecting major financial changes such as retirement or inheritances.

The National Society of Accountants (NSA) offers this checklist of tax changes and strategies, courtesy of CCH (a Wolters Kluwer business).

Traditional planning

Current individual income tax rates of 10, 15, 25, 28, 33, 35 and 39.6 percent will be in place for 2015, as will current tax treatment of capital gains and dividends. The limitation on itemized deductions and the personal exemption phase-out are also expected to remain unchanged for 2015.

One traditional planning tactic: Spread recognition of your income between years by postponing year-end bonuses, maximizing deductible retirement contributions, and delaying your year-end billings. You may also want to pre-pay real estate taxes or mortgage interest. Timing recognition of your capital gains and losses at year’s end may minimize your net capital gains tax and maximize deductible capital losses.

Life changes. Did you get married or divorced? Change jobs or retire? Review events in 2014. A change in employment, for example, may bring about severance pay, sign-on bonuses, stock options, moving expenses, and COBRA health benefits, among other changes that affect your taxes.

Retirement savings. You can contribute up to $5,500 to an individual retirement account or Roth IRA for 2014 and, if you’re 50 or older, make catch-up contributions of an additional $1,000.  You also have until April 15, 2015, to make an IRA contribution for 2014. A myRA account – a new type of retirement savings vehicle from the federal government for people who don’t have an employer-sponsored retirement plan – might also receive contribution tax benefits.

Giving. You can make tax-free gifts of $14,000 per recipient (unlimited in number) for 2014. You and your spouse can also combine gift-tax exclusions and make tax-free gifts per recipient of up to $28,000. Bear in mind too that you can make unlimited tax-free gifts for qualified tuition or medical expenses of another person (must be paid directly to a medical or educational institution).

New developments

The new net investment income (NII) tax may become part of your tax planning. The Affordable Care Act (ACA, aka Obamacare) created the NII to help fund health-care reform. There are three categories of NII:

  • Gross income from interest, dividends, annuities, royalties, and rents if the income is not derived in a trade or business;
  • Income from a “trade or business” that’s a passive activity under Code Sec. 469, or is from a business as a financial trader; and
  • Net gains from the sale of property, unless the property is held in a non-passive trade or business. Certain income thresholds trigger the NII: $200,000 for single taxpayers; $250,000 for married couples filing a joint return; and $125,000 for married couples filing separately.

Extenders. Among popular extenders (aka tax breaks) still in effect: deductions for state and local general sales tax, mortgage insurance premiums, and teachers’ classroom expenses; and breaks for qualified charitable distributions from IRAs, higher education tuition, and charitable contributions of real property for conservation purposes.

Permanent extenders include the student loan-interest deduction, special enhancements to the earned income tax credit, the child tax credit, and the child and dependent care credit, and special enhancements to the adoption credit and adoption assistance programs.

Health insurance

The ACA now mandates that you carry health insurance or make a shared responsibility payment, unless you’re exempt.  For many, employer-provided health insurance, Medicare, or Medicaid satisfies this mandate. If you must make a responsibility payment with your 2014 return, you owe 1/12th of the annual payment for each month that you or your dependents are not covered and not exempt. For 2014, the total annual payment is generally the greater of:

  • 1% of your household income above the tax return threshold for your filing status (for example, your income above $10,150 if you are younger than 65 and file using Single status, or your income above $22,700 if you file Married Filing Jointly with your spouse and you’re both 65 or older).
  • A flat dollar amount of $95 per adult and $47.50 per child, to a maximum of $285. The annual payment maxes out at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014 ($2,448 per individual, $12,240 for a family of five or more).

To read the full article from the NSA, click here.