There is still time to make some moves that could save you money on the tax in 2014, but you need to act fast. Not all strategies will apply to everyone, but hopefully, one or two will apply to you.
While the stock market has performed well this past year, not all stocks increased in value. If one or more of your stocks declined in value, you might consider selling before the end of the year and use the loss to offset other gains for the year or to produce a deductible loss. The net capital loss on a tax return is limited to $3,000 for the year, but any excess loss carries over to future years.
Make sure you take the required minimum distribution before the end of the year if you are over 70 ½. The penalty for failing to make the proper distribution is an additional tax equal to 50% of the under-distribution amount. If you turned 70 ½ in 2014, you have a little leeway. You have until April 2, 2015, to take your distribution but beware that you will also need to take your 2015 distribution within the year.
Prepayment of the tax
If you itemize deductions, you can increase those deductions for the year by prepaying certain taxes. You may want to consider prepayment for the next installment of your property taxes before the end of 2014, or pay your 4th quarter state tax estimate in December.
Qualified business expenditures.
Business owners should consider making expenditures that qualify for the $25,000 business property expensing (Sec 179) election before year-end. Hopefully, this gets passed by Congress, and the amount changes back to $500,000 for 2014. Nobody knows what 2015 will bring. So, take advantage of the deduction while you still can.
Gift and estate taxes.
You can make gifts, up to $14,000 per individual, without creating a gift tax filing requirement.
If you have a substantial gain in stock or other asset you want to sell, but don’t want the resulting tax liability, consider one of the following techniques to give away the appreciated asset and let the recipient take the gain:
* Charitable Gift
Instead of cash, consider gifts of appreciated property. This approach lets you receive a charitable contribution deduction equal to the fair market value of the gift and at the same time avoid having to report the gain from selling the asset on your return. Make sure the numbers work in your favor. The maximum deduction for gifts of this type can be as low as 20% or 30% of AGI as compared to 50% for cash gifts. Also, if the value of the stock you are considering gifting is less than what you paid for it, you’ll be better off to sell it, take the loss on your return, and then contribute the cash to the charity.
* Gifts to Individuals
Giving a gift of appreciated property to an individual (donee) transfers the gain from that property to the donee. That can be advantageous depending on the tax bracket of the donee. Caution, this strategy will not work for children who are subject to the kiddie tax.
Deductions. If you are marginally able to itemize each year, you may want to consider “bunching” deductions in one year and then claim the standard deduction in the alternate year. For example, by paying two years of your regular donation to a charitable organization all in one year, deducting the total in that year, and the next year contributing nothing and taking the standard deduction, the combined tax for the two years may be less than if a contribution was made in each year.
The tax saving tips above is a brief summary of several of the more common year-end tax strategies. Of course, you will want to determine how they might impact your particular set of circumstances before implementing. Please call me if you have any questions about year-end tax planning.