Consider These 10 Basic Tax To-Dos for the Rest of 2014
-
Make time to plan.
There’s real opportunity for tax savings when you assess whether you’ll be paying taxes at a lower rate in one year than in another.
-
Defer income.
Consider any opportunities you have to defer income to 2015, particularly if you think you may be in a lower tax bracket next year.
-
Accelerate deductions.
If you itemize deductions, making payments for deductible expenses before the end of the year, instead of paying them in early 2015, could make a difference on your 2014 return.
-
Know your limits.
If your adjusted gross income (AGI) is more than $254,200 ($305,050 if married and filing jointly, $152,525 if married and filing separately, $279,650 if filing as head of household), your personal and dependent exemptions may be phased out, and your itemized deductions may be limited. If your 2014 AGI puts you in this range, consider any potential limitation on itemized deductions as you weigh any moves relating to timing deductions.
-
Factor in the AMT.
If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end tax planning.
-
Maximize your retirement savings.
Deductible contributions to your traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) could reduce your 2014 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) plan are made with after-tax dollars, so there’s no immediate tax savings. But qualified distributions are completely free from federal income tax, making Roth retirement savings vehicles appealing for many.
-
Take the required distributions.
Once you reach age 70½ you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working and participating in an employer-sponsored plan). Take any distributions by the date required. The penalty for failing to do so is substantial: 50 percent of the amount that should have been distributed.
-
Know what’s changed.
A host of popular tax provisions expired at the end of 2013, including: deducting state and local sales taxes in lieu of state and local income taxes; the above-the-line deduction for qualified higher-education expenses; qualified charitable distributions (QCDs) from IRAs; and increased business expense and “bonus” depreciation rules.
-
Stay up to date.
It’s always possible that legislation late in the year could retroactively extend some of the provisions above, or add new wrinkles—so stay informed and adjust accordingly.
-
Get help if you need it.
There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who can evaluate your situation, keep you apprised of legislative changes, and help you determine if any year-end moves make sense for you.