Things you can do before & for 2014.

Provided by Milton Cooley

 

What financial, business or life priorities do you need to address for 2014? Now is a good time to think about the investing, saving or budgeting methods you could employ toward specific objectives. Some year-end financial moves may prove crucial to the pursuit of those goals as well.

What can you do to lower your 2013 taxes? Before the year fades away, you have plenty of options. Here are a few that may prove convenient:

*Make a charitable gift before New Year’s Day. You can claim the deduction on your 2013 return, provided you use Schedule A. The paper trail is important here.

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December but only end up gifting $500 before 2013 ends, you can only deduct $500.¹

Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the stock, fund or bond and then donating those proceeds. (Of course, if your investment is a loser, then it might be better to sell it and donate the money so you can claim a loss on the sale and deduct a charitable contribution equivalent to the proceeds.)²

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.¹

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at  irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

*Contribute more to your retirement plan. If you haven’t turned 70½ and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can reduce your 2013 taxable income by the amount of your contribution. If you are self-employed and don’t have a solo 401(k) or something similar, consider establishing and funding a plan before the end of the year. Also, keep in mind that your 2013 tax year contribution to an IRA or solo 401(k) may be made as late as April 15, 2014 (or October 15, 2014 if you file Form 4868). For 2013, you can contribute up to $17,500 in a 401(k), 403(b) or profit-sharing plan, with a $5,500 catch-up contribution also allowed if you are age 50 or older.^3,4

*Make a capital purchase. If you buy assets for your business that have a useful life of more than one year – a truck, a computer, furniture, a rototiller, whatever – those purchases are commonly characterized as capital expenses. For 2013, the Section 179 deduction can be as much as $500,000 (although it is ultimately limited to your net taxable business income). First-year bonus depreciation is set at 50% for most purchases of new equipment and software in 2013. It is uncertain if 2014 deductions will be as generous.³

*Open an HSA. If you work for yourself or have a very small business, you may pay for your own health coverage. If you set up and fund a Health Savings Account in 2013, you can make fully deductible HSA contributions of up to $3,250 (singles) or $6,450 (married couples). Catch-up contributions of up to $1,000 are allowed for those 50 or older.³

*Practice tax loss harvesting.  If it ends up that your total capital losses top all of your capital gains this year, you can deduct up to $3,000 of capital losses from this year’s taxable income. If you have over $3,000 in capital losses, the excess rolls over into 2014.^2,3

Are there other major moves that you should consider? Here are some additional ideas with merit.

*Pay attention to asset location. Tax-efficient asset location can be an ignored fundamental of investing. Broadly speaking, consider placing your least tax-efficient securities in pre-tax accounts and your most tax-efficient securities should be held in taxable accounts.

*Can you contribute the maximum to your IRA on January 1? The rationale behind this is that the sooner you make your contribution, the more interest those assets will earn. If you haven’t made your 2013 IRA contribution, you still have until April 15, 2014 to do that.³

In 2013 you can contribute up to $5,500 to a Roth or traditional IRA if you are age 49 or younger, and up to $6,500 if you are age 50 and older (though your MAGI may affect how much you can put into a Roth IRA).⁵

What are the income limits on tax deductions for traditional IRA contributions? If you participate in a workplace retirement plan, the 2013 MAGI phase-out ranges are $59,000-69,000 for singles and heads of households, $95,000-115,000 for married couples filing jointly when the spouse making IRA contributions is covered by a workplace retirement plan, and $178,000-188,000 for an IRA contributor who is not covered by a workplace retirement plan but is married to someone who is.^4,5

*Should you go Roth before 2014 gets here? If you are a high earner, remember that the planned 3.8% Medicare surtax affecting single/joint filers with AGIs over $200,000/$250,000 will not apply to qualified payouts from Roth accounts.⁶

MAGI phase-out limits affect Roth IRA contributions. For 2013, phase-outs kick in at $178,000 for joint filers and $112,000 for single filers. Should your MAGI prevent you from contributing to a Roth IRA at all, you still have a chance to contribute to a traditional IRA in 2013 and then roll those assets over into a Roth.^4,6

Consult a tax or financial professional before you make any IRA moves to see how it may affect your overall financial picture. If you have a large traditional IRA, the projected tax resulting from the conversion may make you think twice.

What else should you consider as 2013 turns into 2014? There are some other important things to note…

*Review your withholding status. Should it be adjusted due to any of the following factors?

>> You tend to pay a great deal of income tax each year.

>> You tend to get a big federal tax refund each year.

>> You recently married or divorced.

>> A family member recently passed away.

>> You have a new job at a much greater salary.

>> You started a business venture or became self-employed.

*If you are retired and older than 70½, remember your RMD. Retirees over age 70½ must begin taking Required Minimum Distributions from traditional IRAs, and Roth 401(k)s and all employer-sponsored retirement plans by December 31. The IRS penalty for failing to take an RMD equals 50% of the RMD amount.⁷

Your first RMD will be different, though. If you have turned or will turn 70½ in 2013, you can postpone your first IRA RMD until April 1, 2014. The downside of that is that you will have to take two IRA RMDs next year, both taxable events – you will have to make your 2013 tax year withdrawal by April 1, 2014 and your 2014 tax year withdrawal by December 31, 2014.⁷

Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your modified AGI plus 50% of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable. For tax year 2013, Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.⁸

*Consider the tax impact of any 2013 transactions. Did you sell real property this year – or do you plan to before 2013 ends? Did you start a business? Are you thinking about exercising a stock option? Could any large commissions or bonuses come your way before January? Did you sell an investment held outside of a tax-deferred account? Any of this might significantly affect your 2013 taxes.

*Would it be worth making a 13th mortgage payment this year? If your house is underwater, there’s no sense in doing it – and you could also argue that the dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January mortgage payment in December. If you have a fixed-rate loan, a lump sum payment can reduce the principal and the total interest paid on it by that much more.

*Are you marrying in 2014? If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2014, you will need a new Social Security card. Additionally, you and your spouse no doubt have individually particular retirement saving and investment strategies. Will they need to be revised or adjusted with marriage?

*Are you coming home from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure your employee health insurance is still there, and revoke any power of attorney you may have granted to another person.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in the New Year.

Milton Cooley may be reached at 803 732-4288 or taxonwheels@att.net .

www.taxonwheels.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/uac/Nine-Tips-for-Charitable-Taxpayers [5/16/13]

2 – kiplinger.com/article/taxes/T052-C005-S001-charities-give-stocks-instead.html [12/27/12]

3 – nolo.com/legal-encyclopedia/five-things-business-owners-can-before-december-31-lower-their-taxes.html [12/12]

4 – irs.gov/uac/2013-Pension-Plan-Limitations [10/18/12]

5 – kiplinger.com/article/retirement/T047-C001-S001-2013-retirement-account-contribution-limits.html [10/23/12]

6 – online.wsj.com/article/SB10001424052702304072004577325551162426954.html [10/11/12]

7 – irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/16/13]

8 – socialsecurity.gov/planners/taxes.htm [10/18/12]

What changes should we consider making for next year?

Provided by Milton Cooley

2014 is really not too far away. Fall is the time of year when the financially savvy start to look for ways to reduce their taxes and make year-end moves in pursuit of key financial objectives.

What might the big picture hold? Absent a crystal ball, let’s turn to the September edition of the Wall Street Journal’s Economic Forecasting Survey. The WSJ asks 52 economists for their take on things each month, and here is how they see 2014 shaping up for America: GDP of 2.8%, a jobless rate declining from the present 7.3% to 6.6% by the end of next year and consumer inflation of 2.5% or less through the end of 2015. These analysts also see the Federal Reserve keeping the benchmark interest rate at 0-0.25% for all of 2014. As for the yield on the 10-year note, their consensus projection has it hitting 3.28% in June 2014 and 3.57% in December 2014. They also see home prices rising 5.22% YOY in 2014 after a 7.85% gain across 2013. Oil, they think, will average $102.73 a barrel on the NYMEX this December, declining to $98.17 a barrel next December. For its part, the International Monetary Fund projects 3.8% inflation-adjusted global growth next year, and a 4.3% tumble for global non-fuel commodities in U.S. dollar terms. These are all macro forecasts worth keeping in mind.^1,2

Now, how about your picture? Beyond these macro forecasts that may affect your business and personal finances, what moves might you consider?

Can you max out your IRA or workplace retirement plan contribution? If you have, congratulations (especially if you benefit further from an employer match). If you haven’t, you still have the chance to put up to $5,500 into a traditional or Roth IRA for tax year 2013, $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans and the Thrift Savings Plan is $17,500 for 2013, with a $5,500 catch-up contribution allowed for those 50 and older.^3,4

Incidentally, the FY 2014 federal budget set out by the White House proposes some changes to IRAs & 401(k)-style plans in 2014. First, if an individual’s total tax-deferred retirement savings through these plans is great enough to produce yearly retirement income of $205,000 for the individual and his/her surviving spouse, then further contributions to such accounts would be nixed. (Today, it would take savings of nearly $3.5 million to produce such a retirement income stream.) Second, the Stretch IRA strategy would basically vanish: the FY 2014 budget proposes that all IRA inheritors follow the 5-year rule, in which an inherited IRA balance is reduced to zero by the end of the fifth year after the year in which the original IRA owner dies. (Disabled IRA inheritors and certain other beneficiaries would be exempt from the 5-year rule.)⁵

Should you go Roth in 2014? The younger you are, the more sense a Roth IRA conversion may make. If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it. If you think you will pay less tax in the future or you might die with a large charitable bequest, then it may not be a wise move.

Can you harvest portfolio losses before 2014? This is the time of year to think about tax loss harvesting – dumping the losers in your portfolio. You can claim losses equivalent to any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to repurchase any shares should you wish.⁶

In terms of taxes, should you delay a big financial move until 2014? Talk with a tax professional about the impact that selling or buying a home or business might have on your 2013 taxes. You may want to wait. Receiving a bonus, getting married or divorced, exercising a stock option, taking a lump-sum payout – these events have potentially major tax consequences as well. Business owners may want to consider whether to make a capital purchase or not.

Look at tax efficiency in your portfolio. Investors were strongly cautioned to do this at the end of 2012 as the fiscal cliff loomed; it is a good idea before any year ebbs into the next. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts.

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, you will want to review this with your tax preparer.

Milton Cooley may be reached at 803 732-4288 or taxonwheels@att.net.

www.taxonwheels.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07 [9/12/13]

2 – forbes.com/sites/billconerly/2013/09/02/economic-assumptions-for-your-2014-business-plan/ [9/2/13]

3 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits/ [9/12/13]

4 – shrm.org/hrdisciplines/benefits/articles/pages/2013-irs-401k-contribution-limits.aspx [10/19/12]

5 – blogs.marketwatch.com/encore/2013/09/09/budget-talks-could-alter-401k-ira-rules/ [9/9/13]

6 – dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]

Some may be renewed, others may not be.

Provided by Milton Cooley

At the end of every year, certain federal tax breaks face a sunset. Some are renewed, some expire. As 2014 will soon start, here is a list of some of notable tax provisions that may go away next year – offering some opportunities that you may want to take advantage of this year.

Qualified tuition deduction. For 2013, an individual taxpayer has the chance to claim an above-the-line deduction for tuition and fees. This applies only to qualified higher education expenses. This deduction is set to expire at the end of this year; it may or may not be extended.^1,2

Mortgage insurance premiums deductions. Are you paying for private mortgage insurance (PMI)? This year, you can treat qualified PMI premiums as home mortgage interest, but the deduction only applies if your adjusted gross income is no greater than $109,000. This tax break could go away in 2014; it is available only for mortgages entered into during 2007-13.^1,3,4

Mortgage debt relief. In 2013, canceled mortgage debt of up to $2 million (or $1 million, in the case of married taxpayers filing separately) can be excluded from taxable income. The debt must be forgiven on a qualified principal residence (i.e., a taxpayer’s primary home) due to the borrowers’ financial condition or a decline in value of the residence. You can thank the Mortgage Debt Relief Act of 2007 for this. The tax break is set to sunset at the end of 2013, though – and if it does, then any such debt forgiven next year will be taxable income.^2,5

State & local general sales tax deduction. 2013 might be the last year individual taxpayers can choose to deduct state and local general sales taxes as opposed to state and local income taxes. This option is set to expire at the end of the year.¹

Educator out-of-pocket expenses deduction. Classroom teachers/instructors, counselors, principals and aides who work in grades K-12 have enjoyed a special deduction of up to $250 in out-of-pocket costs above the line in 2013. As for 2014, this deduction is still a question mark.¹

Qualified charitable distributions from an IRA. If you are over 70½, you have through December 31 to make a tax-free transfer of assets from an IRA directly to a qualified charity. While you can’t deduct the amount as a charitable contribution, it does count toward your annual required minimum distribution (RMD). Will this option be extended into 2014, or be made permanent? No one knows just yet.¹

Increased expensing & bonus depreciation allowances. This year, the Section 179 deduction is set at $500,000 while the qualifying property limit is $2 million. In 2014, these limits are slated to drop dramatically: a Section 179 deduction of $25,000, a qualifying property limit of $200,000. In 2013 you can expense off-the-shelf software under Section 179; not so in 2014. This year, you can amend or irrevocably revoke a Section 179 election; next year, a Section 179 election will generally be irrevocable with IRS consent. While you can claim the Section 179 deduction on up to $250,000 of qualified real property this year, 2014 may offer you no such chance. For 2013, qualified leasehold and retail improvements and qualified restaurant property were given a 15-year straight-line recovery period; in 2014 the straight-line recovery period becomes 39 years. Congress may act to preserve all these current allowances.^1,2

Currently, 50% special depreciation is permitted for qualified property additions placed into service in 2013, only long production-period property and certain kinds of aircraft will are slated to qualify to special depreciation in 2014. Again, Congress may preserve the current allowance.²

Electric vehicle credit. If you bought (or even leased) an electric car this year, you may be eligible for a tax credit of up to $7,500 (variable based on the size of the battery pack used by the vehicle). This tax perk is set to sunset in 2014. If you bought a qualifying 2-wheel or 3-wheel plug-in electric vehicle this year, you are eligible for a federal tax credit of up to $2,500.^2,3

Personal energy property credit. Since 2006, there has been a $500 lifetime tax credit available to taxpayers who remodel their homes for energy efficiency. If you haven’t remodeled enough to claim the full $500 credit yet, a heads-up: it is set to expire at year’s end.^1,3

R&D tax credit. This credit is admittedly hard to figure, but it can bring about major savings and can be carried forward or back. Up to 20% of R&D expenses (above a base) may generally be used as a credit against tax owed. Who knows, it may not be around for 2014.⁶

Transit benefits. In 2013, the exclusion for transit passes and/or vanpooling, provided by an employer, is $245 monthly; this is the same as the exclusion for employer-provided parking. Next year, the benefit for public transportation falls to $100 per month (with adjustment for inflation) while the exclusion for employer-provided parking stays at $245 per month.^2,3

One more thing to keep in mind. The IRS will delay the start of the tax-filing season by at least a week, a consequence of October’s federal government shutdown. It had planned to accept tax returns on January 21; that date will now be January 28 or later, with the final determination coming in December. The April 15 deadline for filing returns or requesting extensions still applies.⁷

Milton Cooley may be reached at 803 732-4288 or taxonwheels@att.net

www.taxonwheels.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 
Citations.

1 – accountingtoday.com/gallery/disappearing-tax-deductions-67830-1.html [10/30/13]

2 – tinyurl.com/k4pgc8f [11/5/13]

3 – dailyfinance.com/2013/11/05/8-tax-breaks-expiring-year-end-2013/ [11/5/13]

4 – inman.com/2013/08/20/dont-count-on-private-mortgage-insurance-deduction-in-2014/ [8/20/13]

5 – efile.com/home-foreclosure-mortgage-forgiveness-tax-relief-exclude-canceled-debt/ [11/14/13]

6 – inc.com/gene-marks/take-advantage-of-tax-breaks-before-december-31.html [10/31/13]

7 – bloomberg.com/news/2013-10-22/irs-delays-start-of-2014-u-s-tax-filing-citing-shutdown.html [10/22/13]