Accelerate deductions and defer income
· If you have a business with a large job to complete in January, and a lot of supplies you need for that job, consider purchasing the supplies this year.
· Pay licensing fees or professional association dues this year if they are normally renewed in January.
· Pay your children to legitimately work in your business, and some – or all – of their wages can be socked away into a retirement plan. Get ‘em started young!
· Consider invoicing customers in January for jobs you have completed near the end of the year.
· Request that your end-of-year bonus be paid to you in January instead of December.
· Maximize HSA and IRA contributions, moving expenses, or alimony payments.
Bunch itemized deductions
· If you have a lot of medical bills in 2014, but are just under the 10% itemized medical deduction, consider paying for additional items this year – extra glasses or contact lenses, doctor and dentist visits, prescription refills. If you anticipate higher medical expenses in 2015, defer some of these expenses until January or February to take advantage of using the additional deduction in the next year.
· Professional fees like tax planning and prep, and unreimbursed travel and business expenses – union dues, nursing or real estate licenses, etc. – should be bunched as well, depending on the timing. Shift them into 2014 or forward to 2015 to coincide with the medical deductions if possible, for a potentially larger benefit.
· Also look at your state income tax vs. sales tax – especially if you plan to buy (or have bought) a new vehicle. There’s a table the IRS provides so you don’t have to keep all of your receipts, and you can add certain big-ticket items on top that basic amount.
Really check your income and your likely tax liability
· If you were within a $500 refund/payment for 2013, see how close you are this year to the same income and withholding, and adjust the taxes you have taken out of your pay, or adjust the estimated tax payment on Jan 15th.
Leverage tax savings through retirement plans
· Increase 401(k) contributions if it’s not too late for 2014, depending on your employer’s plan.
· Make an IRA contribution – $5500 (plus $1000 catch-up if you’re over 50 years old).
· Set up a self-employed retirement plan and get up to a $52,000 deduction, depending on income.
Roth IRA rollover
· If you know your income and tax bracket will be significantly higher next year, roll that money this year. Conversely, roll it next year if you have a large windfall of income in 2014 that you do not expect in 2015.
· Review any rollover you made this year. If the value of your account decreased, you can reverse a Roth IRA rollover up until the filing deadline for your return, and re-convert later to pay less tax.
Take advantage of investment losses or gains
· If you have a high income this year, consider taking some investment losses – you can deduct $3000 more losses than gains every year, and if you have more losses, carry them into the next year.
· If you have unused passive losses perhaps from rental property, you might be able to take advantage of some passive investment gains to use up some or all of the losses.
Avoid paying gift tax
· The gift tax exclusion is $14,000 per person per year. If you and your spouse plan to help out with a down-payment for your married child’s house, that can add up to 56,000 dollars!
· Open a normal investment account for children’s or grandchildren’s education fund or to help them start a business.
Just a few Idaho specific tax advantages
· Education savings through IDeal College Savings Program (idsaves.org) can net you a tax deduction of up to $8000 on a joint return.
· Charitable donations to specific youth and rehabilitation facilities, or to qualified Idaho educational institutions can provide hundreds of dollars in tax credits.
· Medical insurance is deductible for Idaho, even if it is not eligible as an itemized deduction on a federal tax return.
· Most federal civil service/military /Idaho police/Idaho firefighter retirement pay received after age 65, Social security benefits, and active duty military pay earned outside of Idaho are some of the types of income that are not taxed in Idaho.
· Idaho Medical Savings Account contributions or costs of maintaining a home for the elderly or disabled are deductible from income.
PLAN AHEAD for 2015!
· Getting married? Know what tax issues your new spouse might have – business income, business tax debt, tax debts with a prior spouse, deductions for children or education.
· Divorcing? Determine how jointly owned property is to be divided, and if there will be any tax issues – dissolving a business partnership, for example. Also if Alimony or (ex-) spousal support will be paid – the payer deducts it and the receiver reports it as income. Child support is never an income or deduction item.
· Are you having a baby? Adjust withholding in January for the 2015 tax year to account for the increases in personal exemptions, and child tax credit or earned income tax credits if you qualify.
· Changing jobs? Know your requirements regarding the ACA and health insurance. If your new employer offers and pays for your health insurance, you still must determine if you are receiving minimum essential coverage or if you qualify for a subsidy on the exchange if your employer is small and doesn’t offer coverage. Also, adjust your withholding if your pay will be substantially different that your previous job.
- Expecting to retire? Make sure you have checked your budget. You might need to know how much social security will be taxed based on any other income you have. You should consult with your investment advisor regarding RMDs from qualified accounts, review balances for gains or losses you might need to harvest, and if you will have funds available for gifting. Determine if you should keep rental property based on cash flow to supplement your retirement income, or sell to harvest gains or losses or to provide a lump-sum to invest differently.