With the holiday season in full effect, we at Sterling Financial Services know that it is easy to become overwhelmed with the endless party invitations, gift shopping, bills and all the holiday hype. However, it is important to take a deep breath and collect oneself, knowing that we are here to help! With 2014 quickly coming to an end, why not get a jump start on compiling all pertinent information that we will need to prepare your personal and/or business taxes as well!
We will be ramping up our social media side with updates as there are many consistent changes in tax law that have been and will be happening that affect all of us. This is especially true in regards to the constantly changing healthcare situation and tax code – so stay tuned!
Here is a quick and informative checklist to prepare for your 2014 personal or business taxes:
NOTE: Similar to 2013, year-end tax planning will have its challenges as several key tax breaks were extended only through 2013. Currently, it is unclear whether many of these tax breaks will be extended or made permanent to 2014 and beyond. We do know the 3.8% Medicare surtax on net investment income will require special attention (as discussed below). Net investment income includes taxable interest, dividends, and capital gains, as well as passive income, such as income from rental activities that do not constitute a trade or business. Sterling Financial Services can assist with strategies to minimize or eliminate this additional tax.
Year-End Moves for Individuals:
Adjust your tax withholding. If you’ve gotten married, divorced or had kids in 2014, then you probably need to update your withholding with your employer.
Check your beneficiaries. You can check the beneficiaries on your retirement accounts or insurance policies at any time, but it’s a good idea to do this at least annually when tax planning.
Take your required minimum distributions (RMD). In the year following the year you reach age 70 ½, you must take required minimum distributions from your IRA(s) by April 1.
Donate to charity. Dec. 31 is the deadline for most all charitable contributions you plan to deduct from your 2014 tax return. These can be in the form of cash or non-cash, e.g. household goods & clothing, being sure to get receipts.
Max out retirement plan and/or education plan contributions. You have until you file your tax return next spring to make a 2014 contribution to an individual retirement account (IRA), but 401(k) contributions are only deductible when made in the same calendar year. States often provide state tax breaks when education plan contributions are to a State sponsored plan.
Use up FSA money. If you still have money set aside in a flexible spending account for health care expenses, see if you can order new glasses or schedule that dental work you’ve been putting off.
Defer income and accelerate expenses. Income that arrives in 2015 is taxable in 2015, so in some instances, it might make sense to delay that income, e.g. bonuses, to delay the tax bill.
Consider realizing losses on the sale of stock. Such losses offset other large capital gains (from the sale of stock, sale of a principal residence in excess of the exclusion amount, sale of investment property, etc.) and minimize the burden of the 3.8% Medicare surtax on net investment income, assuming your adjusted gross income is in excess of $200,000 ($250,000 if married filing joint).
Same sex couples should meet with your tax advisor. Recent changes in State and Federal laws have resulted in personal and estate tax advantages.
Year-End Moves for Business Owners:
Meet with your tax advisor to make a 2014 Year-End estimated tax payment. Payments made by January 15, 2015 avoid potential tax underpayment penalties.
Meet with your tax advisor if you are adding Payroll. The Work Opportunity Tax Credit (WOTC) is available for targeted demographic groups and ranges from $2400 to $9600. (This is an employer tax break still being debated by Congress for extension but assumed to be extended at least for 2014)
Meet with your tax advisor to ensure compliance with the Affordable Care Act (ACA and fondly referred to as ‘Obamacare’). Understanding obligations to either provide qualifying health coverage (as a larger employer) or at least providing required notifications to employees (smaller employer) will avoid future penalties.
Consider Placing Business Property in service before Year-End. Placing new business equipment and/or machinery in service before Year-End qualifies for the 50% bonus first year depreciation allowance. It is assumed Congress will extend this provision thru 2014 but there are no guarantees for 2015.
Consider placing leasehold improvements in service before Year-End. Currently there is a 15-year recovery period tax provision available (compared to a 39-year historical recovery period). It is assumed Congress will extend this provision thru 2014 but there are no guarantees for 2015.
Defer income and accelerate expenses. Defer billings to January 1, 2015 and pay expenses (even if not due) before December 31, 2014 using a credit card if necessary and cash flow permitting to help reduce tax liability.
Reimburse Yourself for Out-of-Pocket Business Expenses. You will need to keep an Expense Report — these count as an expense to the business in the current year.
Never hesitate to give us a call or to send your designated tax preparer an email. Also please look on our website for our many helpful resources!