With the holidays and year end quickly approaching, we thought it would be helpful to provide you with some valuable tax planning ideas that you may be able to implement before the end of 2014 or consider in your planning for 2015. These items are applicable to both business owners and individual taxpayers, and they could have a significant impact in reducing your tax liability.
We understand your time is precious, but please take a minute, read through this list, and let us know if you have any questions regarding any of the items listed.
Business Tax Considerations for 2014
- Defer Income or Accelerate Expenses to Next Year
If your business uses the cash method of accounting, you may delay the issuance of invoices until after year- end and pay expenses prior to year-end. If you use the accrual method, you can delay shipment or performance of services until after the end of the year.
- Bonus Depreciation and Section 179 Expense Deductions
The bonus depreciation deduction equal to 50% of the purchase price of qualified property and the increased Sec 179 depreciation of $500,000 both expired on December 31, 2013. It is likely that these provisions will be extended. However, if they are not extended, bonus depreciation will not be available, and the Sec 179 deduction will revert back to $25,000 for 2014.
- Small Business Health Care Tax Credit
This credit is applicable to qualified small employers that pay premiums for employee health insurance under a qualifying arrangement. For tax years 2010 through 2013, the maximum credit was 35% of premiums paid by small business employers and 25% of premiums paid by small tax-exempt employers. For tax years beginning in 2014, the following changes have been made:
- The maximum credit increases to 50% of the employer’s contribution toward the employees’ health insurance premiums (35% for non-profits).
- The employers must obtain the insurance through the Small Business Health Options Program (SHOP) Marketplace.
- The credit is available to eligible employers for a maximum of two years beginning in 2014.
- De Minimis Safe Harbor Expense Election
Businesses may be able to take advantage of the “de minimis safe harbor election” to expense the costs of materials and supplies, assuming the costs do not have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property cannot exceed $5,000 if the taxpayer has an applicable financial statement (i.e.., a certified audited financial statement along with an independent CPA’s report). If there is no applicable financial statement, the cost of a unit of property cannot exceed $500. Where the UNICAP rules are not an issue, purchase such qualifying items before the end of 2014.
- Affordable Care Act Provisions
Beginning in 2015, employers with 100 or more full-time or full-time equivalent employees who do not offer affordable and adequate health insurance to their full-time employees (and dependents) may be required to pay an assessment if at least one of their full-time employees is certified to receive a Premium Tax Credit in the individual Health Insurance Marketplace.
Individual Tax Considerations for 2014
- Accelerate Charitable Contributions.
If you plan to give to charity, consider donating before year end so that you can claim your contribution as an itemized deduction for 2014. This includes donations you charge to a credit card by December 31st, even if you do not pay the bill until 2015. A gift by check also counts for 2014 as long as you mail it by December 31st. Remember, that you must give to a qualified charity to claim a tax deduction.
- Leverage Retirement Account Tax Savings
It is not too late to increase contributions to a retirement account. Traditional retirement accounts such as a 401(k) or an individual retirement account (IRA) still offer some of the best tax savings available. Contributions reduce taxable income at the time that you make them, and you do not pay taxes until you take the money out at retirement. The 2014 contribution limits are $17,500 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).
- Take Advantage of Your Gift Tax Exclusion
You can give up to $14,000 to as many individuals as you like in a calendar year, free of estate or gift tax. If you are married, you and your spouse can give up to $28,000 to each recipient.
- Plan the Timing of Your Itemized Deductions
If you expect your income to drop next year, deductions will probably be more valuable this year. Consider paying tax-deductible expenses before year-end, such as your January mortgage, real estate taxes, and fourth-quarter estimated state and local income taxes. Be cautious though because if you are a candidate for the Alternative Minimum Tax, some of these deductions could be disallowed.
- Capital Losses
If you have portfolio assets that have lost value, they could be a valuable tax tool. Capital losses can be used to offset capital gains. If you have more losses than gains, you can deduct up to $3,000 against your ordinary income in one year, and the excess losses can be carried forward to future tax years. Capital losses could be especially helpful to higher income taxpayers facing the 3.8% Net Investment Income Tax. This surtax, part of the Affordable Care Act, applies to the net investment income of single taxpayers with modified adjusted gross incomes of more than $200,000 ($250,000 if married filing jointly and $125,000 if married filing separately). Applicable taxpayers can reduce this new tax burden by using capital losses to reduce net investment income.
Still have questions?? We want to put you in the best position this tax year, so give us a call at 216.524.8900 to answer your questions or schedule a meeting before the year-end.