Monday, December 1, 2014

Uncertainty making year-end tax planning difficult

As has been the case in recent years, uncertainty swirling in Congress is making end-of-the-year tax planning difficult.
Congress has gotten into some kind of habit of changing these rules at the last minute, between government shutdowns and inability for compromise. Nobody loves taxes, but almost everybody hates not knowing what the rules are throughout the year.
This year, taxpayers are still waiting for Congress to decide on more than 50 temporary – yet popular – tax provisions that officially expired Dec. 31, 2013.
These individual and business tax credits, commonly grouped together and referred to as “extenders,” include deductions for state and local sales tax, breaks on out-of-pocket expenses for teachers and higher educational costs for students, credit for energy-efficient residential additions, taxable waivers on personal residence debt and tax-free IRA charitable distributions for retirees older than 70½.
The Internal Revenue Service already has warned Congress that delaying decisions on these extenders until December could cause the IRS to postpone the start of filing season. If Congress waits until the first of the year, more severe disruptions such as lengthy refund delays and millions of amended return filings could result.
It’s an incredible headache. The extra confusion and pain that Congress causes Americans by delaying this until the last minute gives folks heightened anxiety. They don’t know what they can do.
Another wrinkle faced by millions of taxpayers trying to plan ahead is found in the Affordable Care Act.
Those without health insurance or who are thinking of applying for an exemption from the health care plan to start looking into that now. The exemption-approval process done through the health exchange program will take two to three weeks.
With the experience the federal government has with setting up the health exchanges, I would recommend that they might want to seek information now. It would take probably most of the time between now and the end of January to get it done so that they could go on and file early when they get their W2s at the first of the year.
Regardless of the looming tax uncertainties in Congress,  there are still some standard year-end tips that haven’t changed from previous years.
December is a good time to review investment portfolios to offset taxable capital gains with losses, as well as make charitable donations. As a reminder,  receipts must be retained to receive a tax deduction and that property donations valued at more than $5,000 must be appraised.
An appreciated stock or mutual fund given as a charitable contribution earns a taxpayer double the deduction.
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YEAR-END TAX MOVES YOU CAN MAKE NOW
• Contribute to a tax-advantaged savings plan, like 401K or IRA
• Adjust your withholding
• Harvest your investment losses
• Contribute to charity
• Use annual gift-tax exemption
• Accelerate deductions
• Beware of deduction limitations
• Defer income
• Same-sex couples should evaluate options
• Know flexible spending account (FSA)
• Get health insurance or face penalty
• Watch for last-minute Congressional action