This Holiday Season, Make Time for Taxes

The holiday season is upon us—meaning friends, family, and a whole lot of food. But where do taxes fit in?

There is no better time than the holiday season to review any year-end tax planning decisions that could lead to savings come April 2015. Taxpayers have had time to adjust to the tax rate changes from 2013, so when it comes to prudent tax planning for 2014 and beyond, accelerating deductions and deferring income will likely take center stage.

The income tax rates for 2014 are the same as 2013, so most taxpayers with income similar to past years can expect their tax bill to be comparable to last year's liability. However, reviewing current income and withholding to ensure payments are on track can help you avoid surprises during the filing season. If 2013 led to an unexpected payment being due, an increase to your withholding may help alleviate a cash crunch come April. Even if it's too late in the year to make a meaningful impact for the 2014 tax-year, a review now could prove invaluable come 2015 planning. Another option if a tax liability is projected for 2014: most employees can make an election to contribute additional amounts to their 401(k) to reduce the amount of their taxable income.

Conversely, many taxpayers are excited when they receive a refund with their annual tax filing – but they may not realize that a large refund is, in effect, an interest free loan to the IRS! Individuals who routinely end up with a large refund in April can benefit tremendously from reviewing their withholding elections to reduce the amount of tax deducted from each paycheck. Such benefits include increased cash each pay period and less of a wait for a large refund in April. For assistance to either increase or reduce withholding, taxpayers can visit the IRS Withholding Calculator and then make adjustments to their W-4 on file with their employer.

Reviewing 2013 filings may also help remind taxpayers of deductions and other actions to take at year end, such as accounting for charitable contributions. Charitable contributions can be made in cash or with qualified appreciated securities. Taxpayers with appreciated stock can benefit from a charitable deduction equal to the fair market value of the stock on the date of contribution and, thus, avoid paying the capital gain tax from an eventual sale of the asset.

Taxpayers with net capital gains from stock sales or mutual fund distributions should also review their portfolios for positions with losses, as capital losses recognized this year would offset part or all of the capital gain previously incurred. Eventually, those positions can be repurchased, but only after the “wash sale” rule period has been met. For taxpayers in the highest tax bracket, the recognition of a loss to offset previous gains can lead to a savings of 23.8% – the Federal tax plus the effective resident state tax rate.

To avoid an unexpected cash flow drain at tax time, many self-employed business owners (or those with large income amounts not offset by withholding) should also review their estimated tax payments to determine if they have accurately estimated their 2014 liability. It may also be beneficial to pre-pay state income taxes in December rather than wait until April. For those taxpayers not subject to the alternative minimum tax (AMT), the state income taxes paid during 2014 will be a Federal deduction and could lead to substantial tax savings.

Taxpayers should also be aware of any pending congressional action on the so called “tax extenders” that have not been renewed for 2014. Some of the most common extenders affecting individual taxpayers include the sales and local tax deduction (especially important to those living in states without income tax), bonus depreciation provisions, the charitable IRA rollover, research tax credits, hiring credits like the Work Opportunity Tax Credit, and the tuition deduction for higher education.

Prudent tax planning in 2014 should involve a multi-year approach and consideration of expected changes to a taxpayer’s 2015 income and deduction picture. For example, if a taxpayer’s income in 2014 is less than what they expect it to be in 2015, accelerating income from a planned capital gain or Roth IRA conversion while subject to a lower tax rate could lead to savings when examined on a multi-year basis.  

A basic year-end tax review can lead to substantial savings in April – if action is taken by December 31st. This year-end review can also help get organized for tax time, which can prove invaluable come early 2015 when the pressure to aggregate deduction information heats up.

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

End of year tax planning tips

Before you start thinking about holiday shopping, give some thought to year-end tax planning and preparation.

It’s not too late to take some efficient tax-savings measures for 2014. With proper tax planning, you can maximize your potential tax savings and minimize your tax liability.

Tax planning means looking at your estimated income, deductions and tax liability. Year-end tax planning lets you examine your current financial status and set goals to help you achieve your financial objectives.

To help you prepare:

Check your earnings and withholdings

Look at your current earned wages or other income and how much has been withheld for income taxes or what quarterly estimated taxes have been paid.

Then try to make a reasonable effort of estimating the earned income and withholdings for the remainder of the year. Add to this income your projection of other income, such as interest dividends or capital gains, for the entire year.

Take last year’s tax return and adjust the numbers for the income and expenses you anticipate this year. Even though it’s not going to be exact, you can get a good idea of where you’ll be.

At this point, you can see if you are likely to owe taxes for 2014 or get a refund.

You may then need to consider adjusting your withholdings. Toward year-end, if you are due a bonus, ask if your employer will defer it until January. This might give you more time in 2015 to do some more effective tax planning.

Life changes

Did you get married or divorced this year? Change jobs or retire?

A change in employment, for example, may bring about severance pay, sign-on bonuses, stock options, moving expenses and COBRA health benefits, among other changes that affect your taxes.

Itemized deductions

Will you itemize your deductions or take the standard deduction for 2014? How do you determine which to use?

The standard deduction is determined annually and is a “no questions asked” allowance as a reduction of your income.

For 2014, the amounts for different filing statuses are:

• single: $6,200
• head of household: $9,100
• married filing jointly: $12,400
• married filing separately: $6,200

Deciding to itemize deductions depends on how much you spent on items such as the ones listed below, which are by no means an exhaustive list:

• medical expenses exceeding 10 percent of your adjusted gross income;
• state income, personal property and real estate taxes;
• interest on home mortgages;
• interest on debt to purchase or carry investments, limited to the amount of your investment income;
• charitable contributions in cash and in kind; and
• certain employee and investment expenses to the extent they exceed 2 percent of your adjusted gross income.

If the total amount spent is more than your standard deduction, it may be beneficial for you to claim the itemized deductions.

If it looks as if you won’t have enough of those to itemize in 2014, you may want to defer as many of those expenses as you can, pay them in 2015 and start the comparison again — in effect, “bunching” your deductions.

The (tax) code has a lot of deductions and exemptions available to people.

Check your investments

If you already have taxable capital gains from, for instance, selling stock or real estate, see if you have some unrealized capital losses in other assets that you can sell before year-end to offset those gains and reduce your tax liability.

You can deduct up to $3,000 in capital losses each year, and if there are more (losses), you can carry them forward.

If you’re thinking of selling stock, consider postponing the gain until January to avoid the tax in 2014.

But first make the right decision from an economic or investment standpoint.

Don’t let the ‘tax’ tail wag the ‘economic’ dog. Make sure the decision benefits your overall financial objectives.

Retirement plans

One of the best tax-planning opportunities is to maximize your retirement contributions. Make elective deferrals to your 401(k) account in addition to what your employer contributes.

You can reduce your income by up to $17,500 — $23,000 if you are at least 50 — in some cases. Money you contribute to your 401(k) plan is excluded from your income, which helps lower your tax bill.

If you work and are not covered by a qualified retirement plan, you can make a deductible Individual Retirement Account contribution in 2015 before April 15, the original due date of the return.

Those contributions are deductible in 2014. You basically have 15 months to contribute to an IRA for the current tax year. For example, you can make 2014 contributions any time from Jan. 1, 2014, to April 15, 2015.

Education savings opportunities

Education savings plans are a good long-term savings vehicle to provide for your children’s or grandchildren’s college expenses.

Income earned in these accounts is not taxed as long as the funds withdrawn go toward qualified education expenses.

Generous giving

For 2014, you can give up to $14,000 to a person without incurring any federal gift-tax liability. If you’re married, you and your spouse can give up to $28,000 per recipient.

However, to qualify for the annual gift exclusion, you must give the funds directly to the individual or put them into a trust with certain requirements. You do not get an income-tax deduction for gifts to relatives.

Health insurance

The federal Affordable Care Act now mandates that you carry health insurance or make a shared responsibility payment, unless you’re exempt.

For many, employer-provided health insurance, Medicare or Medicaid satisfies this mandate.

If you must make a responsibility payment with your 2014 return, you owe a twelfth of the annual payment for each month that you or your dependents are not covered or exempt.

For 2014, the total annual payment is generally the greater of:

• 1 percent of your household income above the tax return threshold for your filing status (for example, your income above $10,150 if you are younger than 65 and file using single status, or your income above $22,700 if you file as married filing jointly with your spouse and you’re both 65 or older);
• or a flat dollar amount of $95 per adult and $47.50 per child, to a maximum of $285.

The annual payment maxes out at the cost of the national average premium for a bronze-level health plan available through the Marketplace in 2014: $2,448 per individual, $12,240 for a family of five or more.

Spend your FSA money

A flexible spending account is a savings account offered by an employer that helps you put away tax-free money for qualified medical expenses.

The IRS has changed the rules so that employers can allow employees to carry over up to $500 in their account to the next year. Companies have the option to allow participants to roll over unused funds, but are not required to do so.

If your FSA is a “use it or lose it” one, you’ll want to make sure to use all of your funds by the end of the year. Spend down your FSA on qualified medical expenses to help maximize your tax savings.

And you want to use your flexible spending account for dependent care.

When you start your 2015 tax planning, evaluate the amount you spent in your FSA during 2014 and adjust accordingly.

And for next year?

Start now keeping really good records.

Don’t miss deductions for sloppy record keeping.

The days draw shorter & so does the time for tax planning.

The clock ticks steadily away and it is time once again to consider year-end tax planning.  This is the first in a series of three articles in which we will discuss tax-planning ideas and issues for both individuals and 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 likely will not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year).

This no doubt will delay the start of the tax filing season, perhaps even significantly, so plan accordingly, especially if you are someone who expects to receive a nice refund and have already made early plans about what you intend to do with it!

The expired breaks include, for individuals: 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 70-1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.

For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 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 year-end plans.

They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving 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 un-indexed 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 his estimated MAGI and net investment income (NII) for the year.
Some taxpayers should consider ways to minimize (such as through deferral) additional NII for the balance of the year, while others should try to see if they can reduce MAGI other than net investment income.  Still other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax could also 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 it into account in figuring estimated tax.

There could be situations where an employee needs to have more withheld toward year end to cover the tax. For example, an individual 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. He 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 don't exceed $200,000.

Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also 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 won't be high enough to actually cause the tax to be owed.

Don't Get Sent to the 529 Penalty Box

The rules regarding what happens if you withdraw 529 assets for outlays other than qualified college expenses, such as tuition, fees, and room and board, don't get a lot of attention. Most investors who put money in 529s worry about being unable to save enough for college, not about saving more than they'll need. But for parents unsure whether their child will attend college--perhaps because of poor academic performance or special-needs challenges--the question of whether to put money into a dedicated college-savings vehicle, such as a 529, is very real.

The first thing to consider if you're unsure the beneficiary will attend college is whether the assets could be transferred to another family member. 529 assets may be transferred from the account of one family member to the account of another without penalty, and the list of potential exchange partners is rather broad. Not only can assets be transferred within the immediate family--from one sibling to another, for example--but families with unneeded 529 assets may transfer them to other relatives, such as cousins, aunts, uncles, and even in-laws.

However, not all families will want to or be able to take advantage of this provision. For example, not everyone wants to hand over the hard-earned money they've saved in a 529 account to an extended family member just to avoid paying taxes. And in some cases, families simply do not have any other relatives who can use the money for college. In cases like these, knowing the rules regarding withdrawals for unqualified expenses--which is accounting talk for taking money out of the account and not using it for anything college-related--is essential. 

Expect to Pay a Federal Tax Penalty
Let's start by looking at the main reason investors use 529 plans to save for college in the first place: the tax advantages. Contributions to a 529 are not deductible on federal income taxes. But earnings on that money grow tax-free, and there's no tax on distributions as long as they're used for eligible college expenses. Plus, many states offer income tax deductions on contributions made to in-state 529 plans.

So what happens if the money is not needed or must be withdrawn early for some reason? In that case the earnings portion of the account is subject to federal income tax plus a 10% penalty as well as any applicable state and local income taxes. Withdrawals of the contributions are not subject to federal income tax because the contributions were made with aftertax dollars in the first place (in other words, no federal tax deduction was given on the contributions). For example, if you contributed $5,000 to a 529 plan--and over time it grew to $7,000--but then you had to use the money for nonqualified expenses, you would owe federal income tax on the $2,000 plus a 10% penalty on top of that amount. The 10% penalty is waived, however, if the beneficiary dies or becomes disabled, or if he receives a scholarship. (Most scholarships don't cover all college expenses, however, so there may well be other opportunities to use funds left in the account). The taxes are to be paid by whomever gets the distribution, which could be the account holder or, in some cases, the beneficiary.

Plans make distributions on a pro rata basis, which means that you can't simply request they pay you back your contributions and leave the earnings in the account as a way to avoid paying taxes and a penalty. (By contrast, you can withdraw your contributions from a Roth IRA at any time without taxes or penalty, while leaving the investment earnings alone.) Rather, if the account consists of two thirds contributions and one third earnings, two thirds of the distribution is taken from contributions and one third from earnings. Some plans do, however, allow account holders to take distributions from a specific investment option within the account, according to a spokeswoman from the College Savings Plans Network, a nonprofit organization that provides information on state-sponsored 529 plans. For example, an account holder who splits 529 assets for one beneficiary into two different investment options within the plan could request a distribution from just one of those options and pay taxes accordingly.

State Tax Break Could Be Jeopardized
The other important tax wrinkle to keep in mind if taking nonqualified 529 distributions involves any state income tax deductions you may have received for contributing to the plan. Many states offer residents such tax breaks for contributions made to an in-state plan, but they may also apply a clawback provision to recapture those unpaid taxes if the contributions aren't used as intended. That means for a nonqualified 529 distribution, you could be required to pay state income taxes on the contribution portion and not just on earnings.  

Whether to fund a 529 account for a beneficiary who may not go to college is a very personal decision, and not necessarily one with a clear-cut answer. On the one hand, you'd hate to pay even more in taxes than you would by saving in a taxable account; this is because of the 10% penalty on 529 earnings for nonqualified distributions, not to mention the fact that those earnings would be taxed as ordinary income rather than at lower long-term capital gains rates. On the other hand, the federal and state tax breaks that could be worth thousands of dollars if the beneficiary does go to college are hard to ignore. Ultimately, only you can decide which risk is the one worth taking.

Beware of late year tax changes

Planning for changes in the tax laws — even when no one is sure what they will be as Congress drags its feet ahead of November’s midterm elections — is the most important piece of advice local accountants and tax professionals recommend for small-business owners.

“Small-business owners need to be aware that tax planning is by far the most essential fact this year,said Rice, who specializes in tax deal structuring planning and consulting, business advisory services, tax preparation, tax review and representation before the Internal Revenue Service. “The reason being is many tax provisions have expired and/or not being reenacted. They need to stay in tune with what is going to happen closer to the end of the fourth quarter. After the election, Congress may extend some of those provisions. I’d say the biggest thing is start tax planning and staying up on what is going on in (Washington) D.C.”

One tax law that could change drastically after the election would be the revival of the Section 179 bonus depreciation for 2014. Before 2013, small-business owners and others using the deduction could take a maximum deduction of $500,000 for qualifying business purchases, such as computers, printers and office furniture, among others. Now, the maximum deduction is only $25,000.

In the past, small-business owners would make those large purchases at the end of the year, But all three accountants said that might decision might be unwise this year.

“With business deductions, it’s hard to say,” said Rice, who specializes in tax return preparation and consulting services for businesses, individuals, and not-for-profit entities. “A lot of the tax credits and deductions expired at the end of 2013, and as of yet, have not been extended, modified or really anything done for 2014. I don’t anticipate seeing anything until after the elections. Bonus depreciation has also expired, which allowed a 50 percent deduction for all brand new assets purchased during the year.

“Typically, the case is we don’t hear about it until after it passes until Dec. 31 at midnight. There are a few bills floating around the House to extend the tax provisions, but right now, it’s the roll of the dice. We are not changing the White House this year, but who knows what might happen in the Senate or House.”

Despite the political uncertainty of an election year, creating or contributing to an existing retirement is always sage advice, whether business owners are looking for tax deductions or just ensuring they’ll be comfortable when it comes time to retire.

“The No. 1 thing I recommend to clients is to create or contribute to an existing retirement plan,” said Rice, who specializes in business and management consulting; corporate partnership and individual tax return preparation and planning; estate, retirement and business succession planning; and estate and trust tax return preparation.

“It depends on whether you are self-employed or incorporated. In general terms, a simple IRA could be created by the small business on behalf of employees or themselves, and employees can contribute up to $12,000 per year into the plan,” he said. “On the employer side, you can add up to a 3 percent match. If over 50, employees or owners can add an additional $2,500 to the plan.

“A 401(k) is a little more complicated. It is costly to implement and it requires an annual return where the simple does not. With a 401(k), employees can defer up to $17,500 with an additional $5,500 if over 50. On the employer side, you can match up to 3 percent.”

Tax planning will also help small businesses be prepared for unnecessary penalties and be ready in case the business ends up owing a lot of money to the IRS. This way, the small-business owners can start paying down their debt and not be surprised with a big payment due on April 15.

“One of my big pointers is to encourage business owners to meet with their accountants and discuss their options,” Rice said. “One of the biggest benefits of doing that is to figure out what I can do before the year ends to cut down on my tax bill. It also gives you an idea of what your tax bill will look like. If I’m going to owe $10,000, I don’t want it to be a surprise, plus I have six months or longer to pay it.”

Small-business owners also need to plan for marginal tax rates — the percentage taken from your next dollar of taxable income above a predefined income threshold — and managing their alternative minimum tax — a tax imposed by the federal government on individuals, corporations, estates and trusts.

Taylor said it is especially important to plan for marginal tax rates as those flow through to individual tax returns. He also recommended speaking with a tax adviser to help with planning for the alternative minimum tax.

“A lot of that phases out at $200,000 to $250,000 income with higher rates kicking in at $400,000,” he said. “If small-business owners are not managing this, they won’t know when to pay. A lot of people are trying to figure out when they need to pick up income and manage expenses because they are paying higher tax rates.”

▶ Rice recommends having a good bookkeeping system and making sure records are in order, with receipts to back up disbursements to vendors. This will help make life easier in case of an IRS audit. He also encouraged cash businesses to pay all vendors before the end of the year to get all deductions.

▶ Rice said small-business owners also might consider donating noncash items, such as office equipment, to local nonprofit agencies such as Goodwill or The Salvation Army. He encourages business owners to get receipts for all donations. If an item is valued at $5,000 or more, it must be appraised.

10 Year-End Tax Tips

Here are 10 of the most important 2014 tax planning considerations for individuals, executives and business owners:

1. Accelerate deductions and defer income. Deferring tax is a cornerstone of tax planning. Generally, this means accelerating deductions into the current year and deferring income into next year. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self- employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

2. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non- urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving up a procedure into this year or postponing it until next year, when you'll have more medical expenses. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.

3. Make up a tax shortfall with increased withholding. Don't forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you're in danger of an underpayment penalty, try to make up the shortfall through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.

4. Leverage retirement account tax savings. It's not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement account (IRA) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don't 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).

5. Reconsider a Roth IRA rollover. It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

6. Leverage state and local sales tax deduction. If you itemize deductions, you can elect to deduct state and local sales tax instead of state income taxes. This is valuable if you live in a state without an income tax, but can also provide a bigger deduction in other states if you made big purchases subject to sales tax (like a car, boat, home or all three). The Internal Revenue Service (IRS) has a table allowing you to claim a standard sales tax deduction so you don't have to save all your receipts during the year. This table is based on your income, family size and the local sales tax rate, and you can add the tax from large purchases on top of the standard amount. If you've already paid enough sales tax that you'll make this election for 2014, consider making any planned large purchases before the end of the year. If you wait to make the purchase in 2015 and won't be electing to deduct sales tax that year, you won't get any tax benefit.

7. Don't squander your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don't let it go to waste. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year. For example, a couple with three grown children who are married could give each couple $56,000 each and remove a total of $168,000 gift tax free in a single year. Even more could be given tax free if grandchildren are included.

8. Understand the new home office deduction safe harbor. You can deduct some of the cost of your home if you use your home as your principal place of business, use it to meet clients and customers in the normal course of business, or your office is a separate structure not attached to your home. The amount of this deduction has long been a source of controversy, but the IRS has a new safe harbor this year that allows you to deduct up to $5 per square foot of home office space up to $1,500 per year.

9. Maximize "above-the-line" deductions. Above-the-line deductions are valuable because you deduct them before you calculate your AGI. They are allowed in full and make it less likely that your other tax benefits will be limited. Common above-the-line deductions include traditional IRA and health savings account (HSA) contributions, moving expenses, self-employed health insurance costs and alimony payments.

10. Perform an overall financial checkup. The end of the year is always a good time to assess your current financial situation and plan for the future. You should think about cash flow, health care, retirement, investment and estate planning. Check wills, powers of attorney and health care proxies for changes that may have occurred during the year. Use the open enrollment period to reconsider employer-sponsored programs that could reduce next year's taxable income. HSAs and flexible spending accounts for dependent care or medical expenses allow you to use pre-tax dollars.