Sunday, December 28, 2014

Not All Uninsured Will Have To Pay ACA Tax Penalty

One of the big changes income tax filers and tax preparers will face when they file their taxes next year has to do with the health care insurance requirement under the Affordable Care Act and whether they will pay a penalty for not having it.

Contrary to what some people think, not everyone who does not have the required health insurance this year will have to pay a tax penalty when filing their 2014 taxes.

Some may qualify for an exemption to reduce or eliminate their Affordable Care Act tax penalty..

In fact there are more than 30 exemptions you can apply for that fall into two categories.

People with incomes so low they're exempt from filing a tax return or those for whom the lowest-priced coverage costs more than 8 percent of their household income are some.

A recent survey shows that almost half of Americans are unaware they are required to report their health insurance status on their upcoming 2014 tax returns.

The Intuit TurboTax Health Survey, conducted online by Harris Poll, among over 2,000 U.S. adults over the age of 18, shows Americans are still largely unaware of the connection between their health care and taxes, a news release states.

Fifty-six percent were unaware of the tax penalty exemptions, while nearly half (45 percent) did not know about tax credits that allow those eligible to lower their insurance premiums, the survey showed.

Moreover, while 62 percent of uninsured Americans are aware that those without any health insurance will be required to pay a penalty, 87 percent do not realize that the deadline to avoid a tax penalty for 2014 has passed.

These numbers indicate that even with open enrollment (for 2015) in full swing many Americans still do not know the correlation between their health care and taxes,

There is confusion among tax preparers, the government and the Internal Revenue Service.

Theoretically, everything is set, But I'm expecting people to get notices.

Taxpayers may have to respond to the notices, and tax refunds may get held up, he said.

IRS spokesman Michael Dobzinski said most taxpayers will simply have to check a box to indicate they have appropriate coverage for the year.

The Affordable Care Act sets up a system of third party information reporting to the IRS and does not require taxpayers to submit documentation of health coverage with their tax returns; however, as always, taxpayers are responsible for the accuracy of the information on the tax returns that they sign.

Tax preparers should follow their normal due diligence in determining if their client has appropriate health coverage, Starting next year, insurers and certain employers will send reports on health coverage to the taxpayer and the IRS.

Meanwhile, some of those exemptions from the health insurance penalty are easier to claim. Others are more involved.

Exemptions can be claimed while filing an income tax return or through the health insurance marketplace/exchange.

If the exchange grants the exemption, it will generate an exemption certificate with a number that should be included on IRS Form 8965, to go with the income tax return.

According to the IRS, some of these exemptions can be claimed either during tax time or through the exchange. Some can be granted only through the exchange.

Exemptions that can be claimed on the tax return would cover some of the following people:

Those who had health insurance coverage by May 1, 2014.

Those whose household income is below the minimum filing amount. According to the IRS that threshold for 2014 is $10,150 for single taxpayers and $20,300 for married taxpayers who file a joint return.

Some of those eligible for exemptions granted by the health exchange/ marketplace include:

A member of a religious sect with objections to insurance and those who have experienced a hardship in 2014.

Those who meet one of the 15 hardship exemption criteria. Some of those include those who experienced homelessness, eviction, foreclosure, bankruptcy, or those who were denied Medicaid and live in state that did not expand Medicaid, such as Florida.

"The more difficult exemptions will be hardship exemptions that require documentation like utility shut-off, eviction or foreclosure notices or death certificates, for example," Mertes said.

The process is also more complicated, Mertes explained. It requires a taxpayer to submit a paper application to the Department of Health and Human Services (HHS). HHS will then provide the taxpayer with a number to enter on their tax return, he said.

Hardship applications with HHS should be done early in the tax season in order to meet the April 15 tax filing deadline. If a taxpayer doesn't receive their confirmed application number before April 15, they will have to file their return without the hardship exemption and complete an amended return after they receive the number,

To get full information on penalty exemptions, including how to apply for them, go to

Another misconception people have is amount the amount of tax penalty for the first year.

You may have heard that the penalty the first year is 'just $95, That's only partially true.

It's actually whichever amount is greater: $95 per adult member of the household ($47.50 for dependents under 18) or 1 percent of household taxable income less the minimum filing amount.

Many people will be surprised by this year.

Saturday, December 27, 2014

10 Last-Minute Ways to Save on Your Taxes This Year

In between your holiday shopping and New Year's plans, make time for these time-sensitive tax moves.

1. Be Charitable Now

By donating to charity, you can trim next your tax bill next April. You must itemize to get a write-off, and the organization must be a qualified charity. Check at

Then you simply need to get a check in the mail by Dec. 31. Or put the gift on a credit card before year-end and pay the bill in January. Make sure you have a receipt, be it a cancelled check or your credit-card statement. But if you donate $250 or more, you must get a written record from the charity.

If you give away clothes or stuff from around the house, you’ll be able to deduct the fair market value, as long as the goods are in good condition or better.

“The end of the year is a great time to donate some items to charity,” says financial planner Trent Porter. “Your good deed will be rewarded with a bigger tax refund and a clean closet”

2. Be Charitable Later

If you’re in search of a big deduction in 2014, but you’re not ready to support a single charity now, here’s a good option. With as little as $5,000, you can set up a donor advised fund with a brokerage of fund company such as Fidelity or Schwab. You get the upfront tax savings, the money is invested, and you can then donate a portion of the fund to the charities of your choice for years to come.

“These accounts make it easy to use appreciated securities and other assets to fund your philanthropy, thus avoiding paying capital gains tax on the appreciation,” says financial planner Eric Lewis.

3. Invest in Education

A year of tuition and fees at even a public college will cost you more than $23,000 today. You need all the tax breaks you can get.

If you’re saving for school in a 529 college savings plan, that money grows tax-free, and withdrawals are tax-free as long as the money goes toward higher ed.

You can’t deduct those contributions on your federal return. But in 34 states and the District of Columbia, you can qualify for at least a partial deduction or a credit on your state tax return, as long as you fund the account by Dec. 31. Look up your state’s rules at

4. Speed Up Deductions

A popular strategy for cutting your tax bill is to move up as many deductible expenses as you can. This is especially smart if your income will be high this year—say you cashed out winning investments or sold property.

One simple way is to donate more to charity. You can also make your January mortgage payment in December, which will give you extra interest to deduct. You could also prepay your property taxes, or send in estimated state and local taxes that you would otherwise pay in January. Or pay next year’s professional dues and subscriptions to trade publications.

Don’t employ this strategy, however, if you expect to be in a higher tax bracket in 2015. In that case, the deductions will be more valuable to you next year.

5. Top Off Retirement Plans

In 2014, you can save $17,500 in a 401(k) plan, or $23,000 if you’re 50 or older. If you haven’t saved that much, see if your employer will let you make an extra lump-sum contribution before Dec. 31. If you can’t, make sure you hit the max next year by raising your contribution rate now. The limit will rise to $18,000 in 2015, or $24,000 if you’re 50 or older.

You have until next April 15 to fund a traditional or Roth IRA for 2014, but the sooner you save the more time you’ll have to get the benefit of tax-deferred growth. What’s more, planning ahead might make for better investment choices. A recent Vanguard study found that last-minute IRA investors are more likely to simply park the money in cash and leave it there.

You can contribute $5,500 dollars to an IRA in 2014, or $6,500 if you’re 50 or older.

If you run your own business and want to save in a solo 401(k), you must open that plan by Dec. 31, though you can still fund it through next April 15.

6. Look for Losers

Nearly six years into this bull market, long-term stock investors are sitting on big gains. Maybe you cashed in a profitable stock or mutual fund this year. Or you trimmed back your winners when you rebalanced your portfolio. Unless you sold within a retirement account, you’ll face a tax bill come April. And the best way to cut that is to offset your investment gains with investment losses.

By pairing gains with losses, you can avoid paying capital gains taxes. If you have more losses than gains, you can use up to $3,000 worth to offset your ordinary income, and then save the rest of the losses for future years.

However, don’t let tax avoidance get in the way of sound investing. You should sell a stock or fund before year-end because it doesn’t fit with your investing strategy, not just because you have a loss.

If you want to buy the investment back, you must wait 31 days. Do so sooner, and the IRS will disallow the write-off (what’s called the “wash sale” rule).

7. Part With Big Winners

If you donate winning stocks, bonds, or mutual funds directly to a charity, you can enjoy two tax breaks. You won’t owe any taxes on your capital gains. And you can deduct the full market value of the investment on your 2014 return.

8. Tap Your IRA

With a tax-deferred plan like an IRA, once you hit age 70 1/2 you must take out some money every year. You have to take your first distribution by April 1 the year after you turn 70 1/2. Then the annual deadline for your required minimum distribution, or RMD, is Dec. 31.

This rule doesn’t apply to Roth IRAs, and if you have a 401(k) plan and you’re still working, you can usually wait until you do retire to start withdrawing money.

The IRS minimum is based on your account balance at the end of last year and your current life expectancy. Your broker or adviser can help you with the calculation, but you’re responsible for making the withdrawal. If you fail to do so, you’ll owe a 50% penalty on the amount you should have withdrawn.

You can also donate your RMD directly to charity and avoid paying income taxes on the withdrawal. In mid-December, Congress extended that rule, which had expired, for at least one more year.

9. Spread the Wealth

Making outright gifts is a smart move tax-wise, says Ann Arbor financial planner Mo Vidwans. Your heirs are less likely to face estate taxes down the road—and you can help out your kids or grandchildren when they need it the most. In 2014, you can give as many people as you want up to $14,000 tax-free. If both you and your spouse both make gifts, that’s $28,000.

If you’re funding 529 plan, you can frontload five years worth of gifts and put $70,000 into a child’s account now.

10. Pay Taxes Now and Never Again

With a traditional individual retirement account, your contributions are tax deductible, but you’ll owe income taxes on your withdrawals. A Roth IRA is the opposite: You invest after-tax money, but your withdrawals are 100% tax free.

Before year-end, you can convert a traditional IRA to a Roth. You’ll have to pay taxes on the conversion in 2014. But then you’ll never owe taxes on that money again.

Converting to a Roth is an especially smart move if your income was down this year and you’re in a low tax bracket. If you have a low-income year, do a Roth conversion. “Whenever I see a tax return with negative taxable income I cringe, because it’s such a wasted opportunity.”

And if you later change your mind, you have until the extended tax-filing deadline next October to switch back to a traditional IRA. I recommend undoing any conversion that puts you above the 15% federal tax bracket.

Friday, December 26, 2014

The tax implications of getting married

Your marital status for the entire year is determined as of Dec. 31. This means it doesn’t matter what day you tie the knot, you will be taxed as if you were married for the entire year. So why is the timing of your marriage such an important tax planning decision? There can be a “marriage penalty” when you and your new spouse combine incomes when you file your income tax return. Although it may not be romantic to discuss the tax cost of getting married, the marriage penalty is real for many dual income couples so you should understand what you may be facing in additional taxes.
Logically, you would think that a married couple would incur the same tax liability as two single taxpayers earning the same amounts of income. But as we know, many things in tax law do not make logical sense, and this is one of them. Tax brackets above the 15 percent level are more favorable for single taxpayers than they are for married taxpayers. For example, in 2014, you and your soon-to-be spouse, filing as single, can each have $89,350 of taxable income (or $178,700 combined, assuming equal income levels) before you are subjected to the 28 percent tax bracket. However, once you marry, your combined taxable income over $148,850 will be taxed at a 28 percent rate.
Couples who are married and earn similar amounts of income, especially high earners, will feel the greatest impact from the marriage penalty.
Here is a comparison of 2014 tax bracket levels higher than the 15 percent rate between married filing jointly and filing individual returns.
The 28 percent rate starts at $148,851 for married couples filing jointly and $178,701 for two single taxpayers.
The 33 percent rate starts at $226,851 for married couples filing jointly and $372,701 for two single taxpayers.
The 35 percent rate starts at $405,101 for married couples filing jointly and $810,201 for two single taxpayers.
The 39.6 percent rate starts at $457,601 for married couples filing jointly and $813,501 for two single taxpayers.
So, since you are marrying this year, be aware that it may negatively impact your income tax liability. You should project your income as a married couple so that you can determine the additional tax (if any) you may have when you file your 2014 returns next year.
Here are several other important steps you need to take before tax time rolls around:
Contact the Social Security Administration if you plan on changing your name. Doing so will ensure that your Social Security Number and your new name match when you file your next tax return.
If you have, or are going to have, a new address, be sure to notify the U.S. Postal Service. You should also notify the Internal Revenue Service. This is important because the IRS only corresponds via the U.S. Postal Service, they will not contact you via email or phone.
Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year. You should also run the numbers to determine the correct amount of withholding needed for your new filing status. To adjust your withholdings, you will need to complete a new Form W-4 for your employer(s) so they withhold an appropriate amount from your pay.
Generally, married filing jointly is more beneficial than married filing separately. However, you should determine which filing status will result in the lowest overall tax liability — combined federal and state — and file accordingly.

Tuesday, December 23, 2014

7 big tax changes in 2015

As 2014 draws to a close, it's nearly time for the annual deluge of tax forms – including 1098's reporting mortgage interest or W-2's from employers reporting your annual wages.
But while gathering documents for the past year's taxes is important, equally pressing is the need to adjust your budget to account for changes in the tax code that take effect starting on New Year's Day.
After all, you have been paying taxes and making retirement contributions all year even though taxes don't need to be filed until the following April. While there are a handful oflast-minute strategies to play catch up on 2014 tax obligations, the sad reality is that many folks who have waited until now to think about their taxes are too late.
A better strategy is to plan ahead based on what you think you will owe the Internal Revenue Service, and be proactive on your withholding and savings strategies.
Regardless of what your situation looks like in 2014, here are seven big changes that will affect a large number of taxpayers starting in January 2015.
Health Insurance Penalty: Part of the Affordable Care Act mandates that all Americans have health insurance, or pay a tax penalty as a result. In 2014, the penalties are 1% of your household income or $95 per person – whichever is greater. But in 2015, those penalties ramp up significantly to 2% of total household income, or $325 per person. That can really add up for a middle-class family of four. If you're not covered and paying a penalty on your 2014 taxes, make sure you get health insurance ASAP to avoid penalties as we enter a new tax year in January.
401(k) Limits: The limit on employee contributions to a 401(k) plan will increase to $18,000, up $500 from 2014's cap. That means you tell your payroll department to adjust up your contribution starting on the first of the year to ensure you save the maximum allowable in 2015. Also, the "catch-up" allowance for those over than 50 has also been increased, allowing for an additional $6,000 in contributions instead of the $5,500 cap previously. These new contribution levels are also applicable to 403b accounts and most 457 retirement plans as well.
Flexible Spending Account Limits: The annual limit on employee contributions to flexible spending accounts is now $2,550 for qualified health care expenses. That's up $50 from 2014, so make sure you opt in for this new maximum amount if you take advantage of a health care FSA.
Standard Deduction: The standard deduction – that is, the basic tax break extended to all Americans each year -- rises to $6,300 for single filers and $12,600 for married taxpayers filing jointly in 2015. That's up $100 and $200, respectively, from 2014 figures. The standard deduction is crucial to tax planning and withholding, because if you cannot itemize enough deductions to surpass this amount, this is the only tax break the government will likely be giving you on next year's tax return.
Tax Brackets: For the new tax year starting in January, income tax thresholds have again been adjusted up for inflation. The highest tax rate of 39.6%, for instance, will now apply to single filers who make over $413,200 and married couples making $464,850. Both figures are up about 1.6% from tax year 2014. For more information on specific income tax brackets by filing status, check out the latest IRS revenue procedure document.
IRA Rollovers: Starting in 2015, you can only make one single rollover from an IRA in a 12-month period. This is a bit tricky, because you can still make as many "trustee-to-trustee" transfers as you wish, moving your money directly from one provider to another. What the new IRS rule targets is the practice of withdrawing all those funds and then re-depositing them in a new account – a tactic some folks were using as a short-term, interest-free loan. To protect yourself, limit all rollovers to direct transfers in 2015 if you plan on moving money more than once.
AMT Changes: The so-called "alternative minimum tax" is quite a headache for many middle-class Americans. Since certain breaks can significantly reduce your tax bill, the IRS created the AMT to set a limit on those benefits – and ensure a minimum tax burden on you. The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 for individuals or $83,400 for joint filers. That's up slightly, about 1.5% from 2014.

Sunday, December 21, 2014

Give Yourself the Gift of Year-End Tax Planning

You'll wake up at 4 a.m. to get door-buster deals. You'll clip coupons to save 50 cents on pasta sauce. None of that compares to what you can save by doing a little year-end tax planning. To start, give yourself a gift your can enjoy in your golden years.

Contributing to your retirement account is a great idea. Not only does it help you save on your current year's taxes but it also helps you build that retirement nest egg.

You'll need to go through your human resources department to adjust your 401k contributions, but beefing up your IRA is a lot easier. You can contribute up to $5,500 a year—more if you're over 50 and you have until April 15 to do it. Don't have the cash now? Play with the calendar a little.

You can actually file your return early, claiming the IRA contribution, use your refund and then make the IRA contribution as as long as it's before April 15th,

Another way to save is to spread the wealth and make a donation to charity.

It's good for the community. It's good for your piece of mind, it makes you feel good and at the end of the day, you also save on your taxes and you still have a couple weeks to do that,

If you lessened your taxable income by putting money in a flex spending account, make sure you've used it. While December 31 used to be the deadline, a change in the law means some employers now give you until the end of January, so make plans to see your doctor or get new glasses to use up what's left.

If you do need to sign up for a government-sponsored plan, he says do it now.

Because the penalty for noncompliance goes up significantly in 2015.

The deadline for open enrollment is February 15.

Finally, if you have business-related expenses, get them on the books before the ball drops so you can deduct them on your 2014 taxes. On the flip side, if your sending out invoices for work you've done or services you've provided, you may want to wait.

You might want to consider billing for it in January so you can defer the tax impact of that until next year.

Depending on where you live, you may also be able to lessen your state taxes by putting money into a 529 college savings plan.

Saturday, December 20, 2014

Smart Investing Moves To Cut Your Taxes

After the headline risks of the market and inflation, taxes present the biggest obstacle to your building wealth. Your best investment strategy seeks to not only generate returns on your capital but also to save as much of your money as possible to keep it working for you. One of the surest ways to preserve your capital: Reduce your taxes on investment income and gains.

Here are some strategies:
Asset allocation. One of the first rules of wealth accumulation: Sock as much income as possible into a tax-qualified retirement plan, such as an individual retirement account, a 401(k) or a 403(b) if you work for a school or tax-exempt organization. Such plans do give you an immediate and long-term tax advantage, either deferring taxes until your payouts or allowing you to withdraw in retirement tax-free.

For an overall asset-allocation strategy, though, how you place various investments among your tax-qualified plans and your non-qualified investment accounts counts almost as much as your selection of investments. Place your tax-efficient investments in your non-qualified investment accounts and your non-tax efficient investments in accounts that give you a tax break.

• Non-tax efficient investments include securities and income-producing assets that tend to generate more taxable returns, such as taxable bonds, bond funds and dividend-paying stocks or mutual funds.
• Tax-efficient investments include tax-exempt bonds and bond funds, tax-managed mutual funds, exchange-traded funds and broad market stock index funds.

What and when to buy. If you invest in mutual funds in your non-qualified accounts, consider the portfolio holdings of the fund, how much of the portfolio turns over each year and the amount of unrealized gains that exist only on paper.

About your worst move as a mutual fund investor is to buy shares of an actively traded mutual fund that has a high turnover ratio and sits on a boat-load of capital gains. These types of funds notoriously sell their most profitable stocks, especially to meet share redemption demands, and distributing big – and fully taxable – gains to shareholders. That reduces the share price in some proportion to the distribution, which means you the shareholder are left with a lower share price and a taxable distribution.

Instead, consider investing in funds that temper your capital gains through minimizing taxes with tax harvesting – selling some holdings at a loss to counterbalance the gains – or in broad index stock funds that are more passively managed, and don’t run up a lot of cap gains.

If you feel a need to sell securities to lock in gains, use that opportunity for tax harvesting. You can do this each year to keep your target asset allocation in line with your investment objectives.

You use the proceeds of the stocks sold for gains and losses to add to the portion of your asset allocation that needs increasing.

Avoid the 3.8% surtax. Beginning in 2013, if your modified adjusted gross income (MAGI) exceeds $200,000 ($250,000 if you file your return with the status of married filing jointly), your investment income above a certain threshold may incur an additional 3.8% surtax. This tax doesn’t affect your income earned in qualified accounts or your income from certain investments, such as tax-exempt bonds and qualified dividend-paying stocks.

Seek the guidance of a qualified tax professional to analyze immediate and long-term implications of your investment decisions.

Friday, December 19, 2014

Now is the time to meet with your tax adviser

How many times has it been said at “tax time” in the spring “if I just would have known last year, I could have saved some taxes.” Well right now is “last year” for the return you’ll be filing in the spring and a good time to do some year-end tax planning.
When doing tax planning it is important to know which planning maneuvers have a Dec. 31 deadline and which ones can be delayed until April 15.
Contributions for IRAs, Roth IRAs, Health Savings Accounts, Education IRAs and small business retirement plans such as SEP-IRAs and SIMPLE-IRAs can be made up until the filing date of April 15 (SEPs and SIMPLEs can actually be extended when a return extension is filed).
Contributions into 401(k)s, Flexible Savings Accounts and 529 College Savings Plans (to receive state tax benefits) must all be completed by Dec. 31.
In addition, any gifts to charity must be completed by Dec. 31, and here’s a little tax tip I’ve used with some success. After a nearly six-year bull market you may have some appreciated stocks in your portfolio. If you’ve made a pledge to an organization close to your heart explore fulfilling the pledge with a gift of appreciated stock. If you’ve owned the stock for over a year, capital gains tax can be avoided on the stock’s gains and the full amount of the gift is income tax deductible as well, providing a double tax saving. Most organizations can accommodate this process, just call and ask.
Another popular charitable tax break, which allowed taxpayers over the age of 70 1/2 to donate the required minimum distribution from their IRA or retirement plans directly to charity without including the amount in the taxpayer's taxable income expired in 2013. But is on the docket for the lame duck session. If you pay attention and can delay your distribution until later in the month this tip may yet be available in 2014.
Tax transactions regarding investment gains and losses also have a Dec. 31 deadline. While I don’t like making investment decisions based solely on taxes, taxes should of course be considered. If your income falls into the 15 percent tax bracket (single $36,900, joint $73,800) your long-term capital gains tax rate is zero percent for 2014. Conversely, taxpayers with income in the 39.6 percent bracket ($406,751 single, $457,601 joint) will pay 23.8 percent on dividends and capital gains (as opposed to the typical 15 percent rate), so matching potential losses to gains becomes extremely important at higher income levels.
I know tax rules can be complicated, so a great time to actually have a strategy session with your tax adviser is December (trust me, they’re kind of bored right now). So why not sit down with your adviser or do a little research now so April 15 can end up as much in your favor as possible.

Wednesday, December 17, 2014

Year-end tax advice for individuals

Most people do not want to think about taxes during the holidays. However, when we ring in the New Year it will be too late to take advantage of many 2014 tax breaks. It definitely is worth your while to take a little time before Dec. 31 to squeeze in specific tax reduction strategies that will save you money when you file your return in 2015.

Although tax planning is a 12-month activity, year-end is traditionally the time to review tax strategies from the past and to revise them for the future. For 2014, and looking ahead to 2015, individuals and businesses need to be ready for late tax legislation and prepare for a rash of new requirements and responsibilities under the Patient Protection and Affordable Care Act.

We've outlined some tax planning ideas for individuals that might be applicable to your situation. However, you should consider engaging a financial professional to discuss your specific circumstances in order to minimize your overall tax liability.

Postpone income. Delaying income until 2015 and accelerating deductions this year can lower your 2014 tax bill. By doing so you may be able to claim larger deductions, credits and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI) including: child tax credits, higher education tax credits, and deductions for student loan interest. At the same time, it might be better to accelerate income into 2014. For example, if you plan on purchasing health insurance on a health exchange and you're eligible for a premium assistance credit, then a lower income in 2015 will result in a higher tax credit. It really depends on your situation. If you are subject to alternative minimum tax in 2014, certain deductions, including taxes, are not deductible and therefore should not be accelerated. Reducing your adjusted gross income by postponing income will reduce alternative minimum tax.

Net Investment Income (NII) Tax. The threshold amounts for the NII tax are $250,000 for joint, $125,000 for a married taxpayer filing separately, and $200,000 in any other case. It's important to monitor all of your net investment income to see if you are liable for the NII tax. NII includes more than just capital gains and dividends; it also includes income from a business in which you are a passive participant. Rental income might also be considered NII unless it's earned by a real estate professional. To minimize the potential NII liability, consider strategies that will reduce your income below the thresholds listed above if possible.

Take advantage of zero tax rate on capital gains. The maximum federal income tax rate on long-term capital gains for 2014 is 20 percent. If your taxable income (including the gain) falls within the 10 percent or 15 percent tax brackets, you don't have to pay any tax on the capital gains. You should review your portfolio assets and determine whether you should act before the end of the year.

Realize losses. If you have incurred net capital gains this year, consider selling investments that would generate capital losses prior to December 31. This will allow you to reduce your overall tax bill.

Charitable gifts of appreciated stock. You can boost your charitable contributions by donating stock or mutual fund shares instead of cash. By doing so, you get to deduct the fair market value of your shares and permanently avoid income tax on the capital gain. In turn, the organization or charity you contribute to will receive the full amount. You need to have owned the stock for more than a year in order to deduct the fair market value and you can only deduct up to 30 percent of your adjusted gross income.

Estate and gift taxes. The maximum federal unified estate exclusion amount for 2014, as adjusted for inflation, is $5.34 million for gifts made and estates of decedents dying in 2014. In addition, you can give up to $14,000 in cash or other property completely tax-free to as many individuals as you want - and it doesn't count towards the lifetime exclusion. If you're married, you and your spouse can each gift $14,000 raising the annual maximum exclusion to $28,000.

These are just some of the year-end steps you can take to minimize your overall tax liability. There may be more opportunities if Congress acts quickly to reinstate the tax extenders for individual taxpayers including the state and local sales tax deduction, special mortgage debt forgiveness provisions, higher education tuition deduction, IRA distributions to charities, and teachers' classroom expense deduction. Take the time to meet with your financial advisor so you can act appropriately before Dec. 31.

Tuesday, December 16, 2014

Last Minute Year-End 2014 Tax-Saving Moves for Corporations


As year-end approaches, it would be worthwhile to consider whether you could benefit from the following “last minute” tax-saving moves, including adjustments to income to preserve favorable estimated tax rules for 2015, deferral of certain advance payments to next year, and fine-tuning bonuses 
Accelerating or deferring income can preserve an estimated tax break.Corporations (other than certain “large” corporations) can avoid being penalized for underpaying estimated taxes if they pay installments based on 100 percent of the tax shown on the return for the preceding year. Otherwise, they must pay estimated taxes based on 100 percent of the current year’s tax. However, the safe harbor for 100 percent of last year’s tax isn’t available unless the corporation filed a return for the preceding year that showed a tax liability. A return showing a zero tax liability doesn’t satisfy this requirement. Only a return that shows a positive tax liability for the preceding year makes the safe harbor available.
A corporation (other than a “large” corporation) that anticipates a small net operating loss for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100 percent of its much larger 2015 taxable income. Also, by accelerating income from 2015 to 2014, the income may be taxed at a lower rate in 2014, for example, at 15 percent instead of at 25 percent or 34 percent. However, where a 2014 NOL would result in a carryback that would eliminate tax in an earlier year, the value of the carryback should be compared to the cost of having to pay only a small amount of estimated tax for 2015.
An accrual basis business can take a 2014 deduction for some bonuses not paid until 2015. An accrual basis corporation can take a deduction for its current tax year for a bonus not actually paid to its employee until the following tax year if (1) the employee doesn’t own more than 50 percent in value of the corporation’s stock, (2) the bonus is properly accrued on its books before the end of the current tax year, and (3) the bonus is actually paid within the first two and a half months of the following tax year (for a calendar year taxpayer, within the first two and a half months of 2015).Generally speaking, a taxpayer will be treated as a “large” corporation for estimated tax purposes only if it had taxable income of $1 million or more in any one of the three preceding tax years. As a result, a corporation that didn’t reach that threshold in 2012 or 2013, but expects net income of $1 million or more in 2014 and later tax years, will have an additional incentive for deferring income into (or accelerating deductions from) 2015. If such a shifting of income or deductions lets the corporation avoid reaching the $1 million threshold in 2014, it will be able to use the safe harbor for 100 percent of last year’s tax in 2015.
For employees on the cash basis, the bonus won’t be taxable income until the following year. The 2014 deduction won’t be allowed, however, if the bonus is paid by a personal service corporation to an employee-owner, or by an S corporation to an employee-shareholder, or by a C corporation to a direct or indirect majority owner.
Accrual-basis taxpayers can defer the inclusion of certain advance payments. Accrual-basis taxpayers generally may defer including in gross income advance payments for goods until the tax year in which they are properly accruable for tax purposes if the income inclusion for tax purposes isn’t later than it is under the taxpayer’s accounting method for financial reporting purposes.
An advance payment is also eligible for deferral—but only until the year following its receipt—if:
1. including the payment in income for the year of receipt is a permissible method of accounting for tax purposes;
2. the taxpayer recognizes all or part of it in its financial statement for a later year; and
3. the payment is for (a) services, (b) goods (other than goods for which the deferral method discussed above is used), (c) the use of intellectual property (including by lease or license), (d) the occupancy or use of property ancillary to the provision of services, (e) the sale, lease or license of computer software, (f) guaranty or warranty contracts ancillary to the preceding items, (g) subscriptions in tangible or intangible format, (h) organization membership, and (i) any combination of the preceding items.
For example, let’s say an accrual-basis calendar-year taxpayer received a payment on Nov. 1, 2014 for a contract under which it will repair a customer’s computer equipment for two years. In its financial statements, the taxpayer recognizes 25 percent of the payment in 2014, 50 percent in 2015, and 25 percent in 2016.For tax purposes, under the deferral method discussed above, the taxpayer can report 25 percent in 2014 and defer 75 percent to 2015.
The deferral method cannot be used for (1) rent (unless it’s for items (c), (d), or (e), above), (2) insurance premiums, (3) payments on financial instruments (such as debt instruments, deposits, letters of credit, etc.), (4) payments for certain service warranty contracts, (5) payments for warranty and guaranty contracts where a third party is the primary obligor, (6) payments subject to certain foreign withholding rules, and (7) payments in property to which Section 83 of the tax code applies.
If an advance payment is only partially attributable to an eligible item, it may be allocated among its various parts, and the deferral rule may be used for the eligible part.
Taxpayers wishing to change to the above method may use automatic consent provisions (with certain modifications).Advance consent procedures apply in certain cases, such as where advance payments are allocated.

Sunday, December 14, 2014

Year-End Tax Planning Ideas For Big Savings

With less than a month left in the year, you can easily get a rough idea of how much you will owe in taxes for the 2014 tax year. If your anticipated tax bill is giving you sticker shock, there are a number of investment moves you can take between now and the end of the year to help reduce your tax liability for the 2014 tax year.
  • Boost your 401(k) contributions. If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford. You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Your earnings also grow on a tax-deferred basis. For 2014, you can contribute up to $17,500, or $23,000 if you are 50 or older. (These same limits apply to 403(b) and 457(b) plans.)
  • Contribute to a 529 college savings plan. 529 plan contributions may be tax deductible in your state. When you contribute to a 529 plan, your earnings grow tax-free, provided they are used for qualified higher education expenses. (However, distributions not used for qualified expenses may be subject to income tax and a 10 percent penalty.)
  • Sell your "losers." If you own investments that have lost value, you can sell them before 2014 ends and use the tax loss to offset some capital gains you may have earned in other investments. If you have zero capital gains, you can use up to $3,000 of your tax losses to offset other ordinary income. And for a loss greater than $3,000, you can "carry over" the excess and deduct it from your taxes in future years. If you still like the investment sold at a loss, you must wait 31 days before repurchasing it to avoid violating IRS "wash sale" rules.
  • Delay selling your "winners." Capital gains can increase your adjusted gross income -- and, consequently, your tax bill. So if you are considering selling an asset that has increased in value, such as a stock, you may want to wait until January so the gain will be realized next year.
  • Be generous. Your cash contributions to qualified charities may be tax deductible. But you might get even bigger tax breaks by donating appreciated assets. Suppose, for example, that you purchased shares of ABC stock for $1,000 and they are now worth $10,000. If you were to give these shares to a qualified charity, and you are in the 28 percent tax bracket, you may get a $2,800 tax deduction, based on the current market value of the donated shares.
  • Postpone purchasing mutual fund shares. Many mutual funds pay capital gains distributions in December. So, if you were to buy shares just before the distribution date, you may get a larger distribution, but you will owe capital gains taxes on the money you invested without receiving much benefit from your investment. To avoid this potential problem, ask for the date of the distribution and consider delaying additional investments until afterward.
In addition to these year-end strategies, you may also want to increase your contributions to your traditional or Roth IRA, although you actually have until April 15 to contribute for the 2014 tax year. You can put in up to $5,500, or $6,500 if you are 50 or older. Traditional IRA contributions may reduce your taxable income for 2014, depending upon your income and whether you or your spouse participates in a plan sponsored by your employer. Roth IRAs will not reduce your current taxable income; however, qualifying distributions in the future may be tax-free.
Implementing one or more of these strategies may help you accomplish two objectives -- make progress toward your financial goals while brightening your outlook for the 2014 tax year. That may be a pretty good combination.

Friday, December 12, 2014

Close of 2014 tax planning presents challenges to individuals, businesses

Year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these breaks until the very end of this year and, possibly, not until next year.

For individuals, these breaks include the following:
-      The option to deduct state and local sales and use taxes instead of state and local income taxes;
-      The above-the-line-deduction for qualified higher education expenses;
-      Tax-free IRA distributions for charitable purposes by those age 70½ or older; and
-      The exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.
For businesses, the tax breaks that expired at the end of 2013 and may be retroactively reinstated and extended include the following:
-      A 50% bonus first year depreciation for most new machinery, equipment and software;
-      The $500,000 annual expensing limitation;
-      The research tax credit; and
-      The 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.
Higher-income-earners have unique concerns to address when mapping out their year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, known as HI) tax that applies to individuals who receive wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).
The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on their estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize additional NII for the balance of the year (e.g., through deferral). Others should try to see if they can reduce MAGI other than net investment income and other individuals will need to consider ways to minimize both NII and other types of MAGI.
The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take this into account when figuring their estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. An example of where this may be the case is an individual who earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. The taxpayer would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer do not exceed $200,000. Also, to determine whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals should be mindful that the additional Medicare tax may be over withheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income will not be high enough to actually cause the tax to be owed.

Thursday, December 11, 2014

Time's Running Out for End-of-Year Retirement Planning

When it comes to saving for your retirement, time can either be your best ally or your worst enemy. If you start early and save consistently, it's quite possible for you to wind up retiring as a multimillionaire. The longer you wait, however, the tougher it is to amass the kind of money you'll need to build a nest egg that'll keep you comfortable through the rest of your life.

Not only do the number of years you have left matter when it comes to saving for your retirement, but the time during the year that you invest for your retirement matters, too. There are key deadlines you have to meet if you want to take advantage of qualified tax-deferred retirement plans like your 401k or an IRA. Meet those deadlines and you may be able to cut your taxes now or in retirement and take advantage of decades of tax-deferred compounding. Miss them, and you miss out on those advantages.

The Clock Keeps Ticking

If you have access to a 401k, 403b or the U.S. government's Thrift Savings Plan, you have until Dec. 31, 2014 (or more likely -- your last paycheck of the year) to contribute to your plan. In 2014, you may be able to contribute as much as $17,500 to your plan if you're under age 50. If you're aged 50 or older, the 2014 limit rises to $23,000 this year thanks to a $5,500 catch-up provision. In 2015, the limits increase to $18,000 if you're under age 50 and $24,000 if you're at least 50.

Regardless of if you have access to such a plan at work, you may be able to contribute to either a traditional or a Roth IRA. The window to contribute to your IRA for 2014 is open until April 15, 2015. If you're under age 50 at the end of 2014, the maximum potential contribution amount is $5,500. If you're age 50 or older, the limit is $6,500. For 2015, the limits will be unchanged.

If you're self-employed, you have a little more time. You have until the deadline for your 2014 taxes -- including extensions -- to establish and fund your SEP IRA. That gives you until Oct. 15, 2015, to set up that plan to shelter up to 25% of your self-employment income, but no more than $52,000 for 2014 (the limit becomes $53,000 in 2015).

Why These Deadlines Matter

Qualified retirement accounts like these are incredibly powerful tools for you in your retirement planning. Money you sock away in the plans grows tax deferred and may offer you either a tax deduction as you contribute or the opportunity to take qualified withdrawals completely tax free. You may also be eligible for a match in your employer-sponsored plan -- but you need to participate to get that match. Additionally, the money you have socked away in qualified plans may be protected from your creditors, too, based on either federal or state laws.

On top of all that, you generally face a 10 percent penalty on top of your ordinary income tax rates if you take money out of your qualified retirement account before age 59 and a half (though there are some exceptions to that penalty). That penalty can be a great deterrent against drawing down the money before you retire, helping improve the chances that the money will actually be there for your retirement.

Still, to take advantage of all those benefits, you have to get your money invested in your plan by its deadline. Otherwise, the window for that particular year slams shut forever. If you miss a deadline, you can always invest in an ordinary brokerage account and call it your retirement account. Just remember, though, that if you miss that deadline you won't get any of the unique tax, creditor and potentially matching benefits that come as part of a qualified retirement plan.

Your Retirement Depends on It

The deadline for your 401k, 403b or Thrift Savings Plan contributions for 2014 will be here sooner than you think, and the other plans' deadlines aren't really all that far behind. In addition, the sooner you get started, the faster you can put your money to work compounding for you. That, more than anything else, is the key financial ingredient that will get you through your retirement comfortably.

So use these looming deadlines as a reason to get started and fund your retirement plans. Your future self will thank you for it.

Tuesday, December 9, 2014

7 Important Income Tax Tips

The end of the year is a time to reflect upon the past and plan for the future, including planning for income and estate taxes. Below, we present some important income and estate tax items to consider before the end of the year.

Contributions to a Retirement Plan

Self- employed individuals can establish and fund a qualified retirement plan. There are many different types of plans including Simplified Employee Pension plans (“SEPs”), Solo 401(k) Plans, Savings Incentive Match Plans for Employees (“Simple Plans”), profit sharing plans, and defined benefit plans. Each plan has its own advantages and disadvantages, and the maximum contribution allowed for each plan varies. Some of these plans need to be established prior to December 31, 2014, although they could be funded in 2015 with the amount contributed treated as a deduction in 2014.

Employees not covered by a retirement plan at work can establish an Individual Retirement Account (IRA), and all individuals should consider establishing a Roth IRA.

Prepaying State Income Taxes

State income taxes are deductible when paid. If you have a state estimated tax payment due January 15, 2015, consider accelerating that payment to sometime prior to December 31, 2014 in order to deduct the payment in 2014. However, keep in mind that state income taxes are not deductible for alternative minimum tax purposes.

In addition, a new wrinkle is the impact that state income taxes have on the net investment income tax. A careful analysis of your 2014 and 2015 tax liability (including your alternative minimum tax and net investment income tax) should be done to determine if it is beneficial to prepay state income taxes.

Evaluating Year-to-Date Capital Losses and Year-End Capital Gains

Capital losses can offset capital gains plus $3,000 of ordinary income. Now is the time to review your investment portfolio and your year to date capital gains and losses to determine if you should realize any more losses and/or gains. If you have an overall net loss so far, consider selling some appreciated positions to lock in the gains. If you have an overall net gain so far, consider selling some loss positions to reduce your potential tax liability. Triggering capital losses could also reduce your net investment income tax. You could buy back the securities sold at a loss provided you purchase the securities either more than 30 days before or 30 days after the sale. Capital losses in excess of capital gains plus $3,000 can be carried over. However, some states do not permit carryovers of capital losses.

Charitable Donations

If you are charitably inclined, a donation to a charitable organization can reduce your tax bill. Checks to charities must be in the mail on or before December 31, 2014, while donations charged to a credit card can be deducted if charged in 2014, even if not paid until 2015. Consider giving appreciated securities to a charity instead of cash. The tax deduction for a contribution of appreciated securities is generally equal to the fair market value of the securities given and you do not have to pay income tax on the appreciation associated with the securities. Contributions of appreciated securities to public charities are limited to 30% of your adjusted gross income as opposed to contributions of cash to public charities which are limited to 50% of your adjusted gross income.

Annual Exclusion Gifts

Everyone is allowed to give $14,000 each year to any number of recipients. Married taxpayers can give up to $28,000. This amount is free of any gift or inheritance tax and the recipient is not subject to income tax on the gift.   The gift can be any type of asset - cash, check, stock, artwork, etc. However, it must be a gift of a “present interest” – meaning that the recipient must be able to access the property now, and not just in the future.

Annual exclusion gifts are a simple yet effective way to potentially significantly reduce one’s estate tax. For example, a married couple with three children and nine grandchildren can annually give away $336,000 ($28,000 to each of their twelve descendants) without paying any gift tax. By following this practice for five years, they would have removed $1,690,000 from their taxable estate.

An annual exclusion gift made around the holidays would likely be much appreciated.

Children or Grandchildren Education Planning

Consider opening and funding a section 529 plan. There are many different plans available, all of which are essentially a savings plan for college.

Earnings in a section 529 savings plan and qualified distributions from it are not taxed. Qualified distributions are distributions used to pay for a person’s qualified higher education expenses at an accredited post-secondary educational institution offering credits towards a degree (associate’s, bachelor’s, or graduate/professional degree) plus certain vocational institutions. Qualified higher education expenses are “tuition, fees, books, supplies and equipment.” Certain room and board expenses are also considered qualified higher education expenses

Contributions to section 529 plans qualify for the annual exclusion described above.   In addition, you are allowed to fund up to five times the annual exclusion ($70,000) in one year and treat the transfer as made over five years. Married taxpayers can fund up to $140,000 in one year and treat the transfer as made over five years.

Review Important Tax Documents

Now is a good time to review all your important tax documents such as last wills and testaments, health care proxies, powers of attorney, and trusts. In addition, you should review beneficiary designations for retirement plans and life insurance policies and check how all your property and bank/brokerage accounts are titled. As you go through this review, consider the following:

Have children been born since your documents were last updated?
Has there been a divorce?
Has there been a marriage?
Are the named trustees still close confidants?

Now is the time to consider all the above items before it is too late. Should you need assistance with your year-end income and estate tax planning speak with your trusted tax advisor.

Monday, December 8, 2014

Savvy tax-planning tips for end of the year

As the end of the year approaches, it’s time to think about saving significant money by planning for April. That, of course, is when your tax return for 2014 will be due.

And what you do before the end of 2014 could make a huge difference in whether you end up having more money to spend in 2015 after filing your 2014 tax return. Consider some key credits and deductions to harness now.

• Job search or job move. If you were looking for a new job this year or are moving for a new one, realize that if you itemize on your tax return, you can use job-interview trips, résumé printing costs and moving expenses to reduce your taxes. Moving expenses apply only if you moved at least 50 miles to take a new job. And job-hunting travel expenses apply only if they meet cost thresholds and weren’t covered by the employer.

• Charity begins in your closet, garage or IRA. You can donate clothes, computers, cars, and stock and other investments to IRS-approved charitable organizations and get a deduction. With clothes, list them with fair values and have charities sign the list. In the case of a car, the value depends on whether the charity sells or keeps it.

For people with stocks, mutual funds or other investments that have soared in value, give shares directly to charity and get the full value as a deduction. This is smarter than selling an investment and giving cash instead to charity. Selling usually means you owe Uncle Sam for the capital gain. You avoid paying Uncle Sam for those gains if you give shares directly to the charity, including churches.

• Last-minute income slashing. Many valuable credits like the child-tax credit or the elderly/disabled credit depend on making sure your income isn’t above certain thresholds. If you anticipate being just over the threshold, you might be able to cut income down by year-end. If you have a bonus coming in December, ask that it arrive in January. If you are self-employed, you can bill a client late in December so the payment arrives in January. Wait to sell stocks or bonds that have gained, or sell another investment at a loss to offset the total gain. Unfortunately, seniors over 70½ must take minimum distributions from IRAs even if that adds unwelcome income.

• Go to the doctor.For medical expenses to be deducted, they must total 10 percent of your adjusted gross income, or 7.5 percent if you are over 65. So go to the dentist or doctor now; maybe buy glasses or prescriptions. Go to for more information.

• Think 401(k) for easy income cutting.The easiest way to cut income is to stash more money into your 401(k) or tax-deductible IRA, or open a 401(k) or SEP IRA for a small business. Maximum 401(k) contributions are $17,500, or $23,000 if over 50.

• Get help with college costs.If you or your kids are in college or if you take a special course to advance in your job, maximize large credits. Pay enough in tuition and fees this year to get the maximum credit of $2,500 per student under the American Opportunity Credit. If you’ve maximized the credit this year, wait until next year, if you can, to pay college bills so you can get the $2,500 maximum next year. See income cutoffs and rules at

For adults taking extra classes, use the Lifetime Learning Credit to get up to $2,000 on $10,000 in expenses. Still saving for college? You may get a deduction on your state income taxes if you contribute to a 529 college savings plan in your state.

• Your house can help. If you receive a January bill for your mortgage or property tax, consider paying it by the end of December. Major environmental improvements like solar panels can also provide a credit up to $500.

Sunday, December 7, 2014

Tax-Saving Tips for Year-End

Instead of wracking your brain over what color sweaters you'll give to your loved ones this holiday, you might want to consider ways in which you can still reduce your 2014 tax bill including:

Prepay deductible expenditures. If you itemize deductions, accelerating some deductible expenditures into this year to produce higher 2014 write-offs makes sense if you expect to be in the same or lower tax bracket next year.

State and local taxes. Prepaying state and local income and property taxes that are due early next year can reduce your 2014 federal income tax bill, because your total itemized deductions will be that much higher.

Give to charity. Making donations this year that you would otherwise make next year will push your itemized deductions that much higher this year, trimming your tax bill.

Accelerate deductions and defer income. Deferring tax is a cornerstone of tax planning.
Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of adjusted gross income.

Leverage retirement account tax savings. It’s not too late to increase contributions to a retirement account.

Thursday, December 4, 2014

6 tips for managing your year-end tax planning

The end of 2014 is shaping up to be relatively quiet compared to the challenges of recent years - such as the fiscal cliff. After this year’s mid-term elections a lame duck Congress needs to fund the operations of the federal government, so it is possible new tax law changes could affect current income tax and financial planning. For the time being, though, the current laws provide the guidelines of how taxpayers need to plan.  As a taxpayer, you can take steps now to:
1. Avoid withholding too little.
If you think you’re going to owe money when you file your return, consider increasing your tax withholding with your employer or paying 100 percent of what you owed in taxes last year - or 90 percent of what you estimate you owe this year - to the IRS now. In general, you’re not subject to penalties or interest if you make such payments.
2. Minimize taxes from capital gains.
One way to do this is to sell stocks or mutual funds at a loss to offset any capital gain that you have for the year.
If you’re married and your combined income is $73,800 or less - or if you’re single and your income is $36,900 or less - you are eligible for a federal zero percent long-term capital gains rate. If you qualify for this rate, you may want to take advantage and sell some stock in a gain position.
If your income is higher, consider other steps - such as making your January mortgage payment in December - to reduce your income and qualify for the zero percent federal rate on capital gains. Remember that you may still be subject to state income taxes.
3. Stay below the 3.8 percent investment income tax threshold.
The 3.8 percent tax on investment income became effective in 2013, with a threshold of $200,000 of adjusted gross income for individuals and $250,000 for joint filers.
Short term, you can manage your tax position to keep below the income threshold or minimize investment income in any year where you’ll exceed the threshold. Longer term, consider investment options that avoid the tax, such as tax-exempt bonds.
4. Consider converting retirement assets to a Roth IRA.
Even with tax rates remaining the same or rising, converting traditional IRA assets to Roth IRA assets may still be wise. For one thing, having Roth IRA assets diversifies your retirement assets from a tax perspective. Roth assets allow you to better manage your tax position annually in retirement, and limit the impact of Medicare surcharges and the 3.8 percent investment tax.
Remember, if you wait to convert until January 2015, your tax liability will not be due until you file your return in 2016, giving the Roth assets time to grow tax-free.
5. Contribute to an IRA.
You may contribute to an IRA annually as long as your earned income is at least the amount contributed and you’re not yet 70 1/2.
Income limits apply only to determine if the contribution is deductible from income. Don’t be confused into thinking you’re not eligible. To be clear, every individual with earned income and who has not reached age 70 1/2 can contribute to an IRA. But it may be on an after-tax basis. Still, the earnings are tax-deferred. This can be a powerful way to add to retirement savings on a tax-favored basis.
Funding a traditional IRA also offers an indirect path to funding a Roth IRA for those who earn too much and cannot fund the Roth directly. Once you fund a traditional IRA you can immediately convert it to a Roth. There are no income limits that apply to Roth conversions, and assuming this is your only IRA, there should be little or no income tax due upon conversion because there should be little or no gain on the assets.
Regardless of whether you fund a traditional or Roth IRA, consider making your 2014 contribution now rather than waiting for the April 15, 2015 deadline. Also, consider making your 2015 contribution in January. By accelerating the contributions, you will allow more time for these investments to grow on a tax-deferred or tax-free basis.
6. Make charitable contributions using IRA funds.
The special provision to exclude from income certain IRA funds used for charitable contributions expired at the end of 2013. However, Congress may reinstate the provision this year or early next. So you should adhere to the old provision to be eligible for the reinstated version. For example, pay IRA funds directly to the charity and limit the contribution to under $100,000. There’s no guarantee you’ll qualify under a reinstated provision, but not observing the formalities will almost certainly mean you’ll be ineligible.
Of course, because individual circumstances are unique, it’s always a good idea to consult with your tax and legal advisors before making any tax-related decisions.

Wednesday, December 3, 2014

Take talk of suicide seriously

Originally published:

"Patty is gone" was what I heard when my sister, Maureen, called me on Dec. 3, 2012. My first thought was that Patty had left the care home and was heading back home. No, Patty had taken her life that morning.
I did not have the opportunity to say goodbye. This was something our family and her doctor had given a zero to 5% chance of happening. Suicide had been discussed with Patty, and she had given her "guarantee" that suicide was not an option.
Her wonderful psychiatrist believed that Patty's strong, lifelong Catholic faith would deter her from suicide. I held her hand at Mass the day before. Little did we know she would be gone the next day.
So, after 67 years, we live on with the great memories while wrestling with the mystery of suicide. There won't be any new memories. Lives have changed.
In retrospect, I have come to the realization that instead of assigning a 5% chance that Patty would commit suicide, it should have been a 95% chance. This is easy for me to say one year later.
However, this is not about me or Patty's family. It is about the millions of families that deal with mental illness on a daily basis. They must talk about suicide with each other constantly. They must be direct, open and honest in communications.
Patty was feeling trapped. She wanted her unbearable pain to end. Ninety percent of people who commit suicide in the United States suffer debilitating mental illness, according to the National Institute of Mental Health. The reasons people choose suicide are multilayered, and there is no easy explanation.
What was she thinking? How long had she planned it? Did she have a plan? Why did she do it at that time? Could we have done anything to change her mind? These are some of the questions we now ask.
One of our father's favorite words was fakery. The definition of fakery is the inclination or practice of misleading others through lies or trickery. How long did Patty's fakery go on? Everything makes sense when one is suicidal.
Could we have prevented her suicide? This is the question that will be with our family forever with no answer. I find some solace in believing she was determined to commit suicide. I may be deceiving myself, but I need to find some positives in this tragedy.
Should we have been trained to recognize the signs and symptoms of suicide? Yes. Patty had a special relationship with her doctor. She saw him often, and he had guided her successfully through her previous bouts of depression. This time was different. Four months of pacing, non-eating and total withdrawal had consumed her. We discovered that drugs are not always the answer to make people better. There is no magic cure for depression.
Americans are not prepared to talk about mental illness or suicide because of the stigma. It leaves us with emotional, moral and religious scars. Suicide brings with it an ache, a chaos and a darkness. There is no reason to feel blame or shame: 45.6 million American adults are living with mental illness.
How can someone truly recognize the signs that a loved one may be contemplating suicide? Nobody can predict a suicide. You must be prepared to help someone you love who one day may have a suicidal crisis. Take all talk of suicide seriously. Constantly ask the direct questions, "Are you thinking about suicide?" or "Are you having suicidal thoughts?" Do not treat the threat lightly, even if your loved one jokes about it. They are expressions of extreme distress.
Get your loved one help immediately by taking him or her to the emergency room, calling 911 or the police department, calling a suicide hotline or calling the doctor. Do not leave the person alone. Make sure he or she has no access to means of harm; this includes cords of all kinds.
With a shortage of psychiatric beds, patients must be considered a danger to themselves or others for inpatient admission. Patients must communicate their dangerousness or distress in order to guarantee that they will be admitted for further treatment.
The idea of certainty in our life is an illusion in place so we can function in everyday life. But nothing is certain. Suicide throws out this notion of certainty and forces us to realize that life is a gift. Remember the 95% rule.