The New Year is nearly upon us. To many it simply means another weight loss resolution, but to the Financial Fiduciaries team, this is the time of year when we suggest that clients take a look at their tax standing and consider any year-end moves to make tax season a little more palatable.
- Group your itemized deductions – Deductions can be a tricky part of the tax equation. Some items can only be claimed if they exceed a certain amount of your annual adjusted gross income. With this in mind, we often suggest that items which are not within the range for a deduction on their own be grouped with other like expenses so that they will meet the required minimums.
- Hasten deductions and postpone income – One of the most important parts of tax planning is understanding how to defer your taxes. This means you will have to be a little choosy and creative when considering which things you should deduct in the current year and what income you can put off until the next year. Sometimes this means that certain income related items are pushed into the first quarter, while capital purchase or major payments are made at the end of the current year.
- Know the rules about having a home office – If your home is used as your primary place of business, you can deduct a portion of the cost of your mortgage. The new IRS safe harbor rule states that you can deduct as much as $5 per square foot of the home office space or as much as $1,500 per year.
- Increase your withholding to supersede a tax shortfall – It is important to closely monitor your tax withholding throughout the year, as well as your estimated tax payments, to determine if you are on track. If it appears that you have a shortfall, now is the time to make up the difference by forgoing a salary or a bonus.
- Don’t forget about tax savings from retirement accounts – Now is the time to increase your contributions to a retirement account. Contributions to this type of account can reduce your taxable income when you make contributions. Limits for this year are $17,500 on a 401k and $5,500 for an IRA.
- Make full use of “above-the-line” deductions – An above the line deduction is taken before the annual gross income is calculated. Some of the typical above-the-line deductions include health savings account contributions, relocation expenses and health insurance costs for the self-employed. These deductions are allowed in full and are a great safeguard against other tax benefits being limited.
- Take advantage of the gift tax exclusion – Now is a great time to consider giving a financial gift to your beneficiaries. In 2014 you can gift up to $14,000 per beneficiary and will not be assessed a gift or estate tax. Furthermore, you can combine your gift with your spouse and give up to $28,000 per year to each beneficiary.
It is important to remember that this is by no means an exhaustive list. There are many other tax deductions you might be able to take advantage of before year-end. Now is the time to contact the Financial Fiduciaries team to see if there are any other considerations you should be aware of.