It's not too late to cut
your 2014 tax bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $17,500 into
your 401(k) or 403(b) plan. Anyone 50 or older by December 31st
can put away an additional $5,500. Contributing to a 401(k) or
403(b) plan at work is one of the best tax shelters available to you
during your working years. (You might also start thinking about
setting your 2015
retirement savings goals too, especially since the limits are
increasing for 2015.)
If you’re self-employed, consider setting up a Solo 401(k)
by 12/31. A Solo 401(k) plan lets a self-employed person hit the
$52k retirement plan max with less income than a SEP IRA, and also
allows a person aged 50 or older to put away $57.5k into a retirement
plan for 2014.
Take a look at your
withholdings and instruct your employer to withhold additional taxes
if you haven’t had enough taxes withheld during the year to avoid
getting hit with an underpayment penalty. (Take a look at the
IRS' Withholding Calculator to set your withholdings for 2015.)
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can
then be used to offset up to $3,000 of wages and other income.
Make sure to wait at least 31 days before buying back a security sold at
a loss, or the IRS will disallow the loss under the "wash sale" rules.
Consider selling your
investments that have increased in value if you are in the lowest tax
since the capital gains rate for you will be 0%. You can then buy back those
securities, and the "cost-basis" will be the higher amount. This
strategy will save you taxes down the road when you sell these
securities. Just make sure that the capital gains realized don't push you
out of the 15% tax bracket, or you'll be taxed on those gains that fall
outside that bracket at 15%.
Send in your January 2015 mortgage payment early enough so it will be processed prior to
12/31/14. By sending in your payment a few weeks early, you can
deduct the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable
since "non-cash" contributions are deductible if you itemize.
Don’t forget to get a receipt. And you should make a
list of each
item donated, along with its condition, and snap a few photos as
well. Remember, only donations
of clothing and household items in "good condition or better" qualify
for a deduction. (To track what you donate, download our
Non-Cash Contribution Worksheet -
Excel Version or the
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2015. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation. (Use this IRS tool to
confirm a charity as legitimate.)
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and not
subject to the alternative minimum tax. Due to the higher tax
rates enacted for 2014, there is a better chance that you won't get hit
by the AMT this year than prior to 2013.
Pre-pay and pay off
your medical bills if your total
medical expenses exceed 10% of
your income and you itemize. Please note that this threshold
remains at 7.5% for people over the age of 65 while the threshold for everyone
increased from 7.5% to 10% back in 2013.
always, evaluate whether you'll save any taxes by postponing 2014 income or deductions into 2015 or
by accelerating 2015 income or deductions into 2014.
Got questions about year-end tax planning? If so, please
contact the closest
A 401k or a 403b plan
offered by your employer is a
great way to save money for retirement.
Money contributed to
these plans as salary deferrals comes out of your paycheck before your
income taxes are calculated. This lowers your tax bill for the current
Money in the 401k or
403b account grows
tax deferred, so you do not pay taxes on the investment earnings as long
as the money remains within the account.
When you retire, you can
make qualified withdrawals from the money built up in your 401kor 403b
plan and pay regular income tax.
If you redeem the money before reaching age 59.5, you will pay income taxes
plus a 10% early withdrawal penalty on distributions taken and not repaid
within 60 days. Exceptions for this penalty (see
Instructions to Form 5329) include the following:
Qualified retirement plan distributions
you receive after separation from service in or
after the year if 55 or older.
made to an estate or beneficiary after the owner's death.
made because an individual became permanently disabled.
medical expenses that exceed 10% of the accountholder's adjusted gross
made to the IRS to pay a levy on the plan itself.
made as part of a series of substantially equal periodic payments over
the life expectancy of the owner and the beneficiary. If these
withdrawals come from a plan other than an IRA (as is the case with a
401(k) plan), then the individual must separate from their employer
before payments begin for this exception.
If you leave your employer, you have a few options for your account that
will not result in a taxable event or penalty:
Leave the account with
former employer's plan
(subject to minimum balance requirements)
Transfer to your new
employer’s retirement plan
Rollover the account to
requirements vary by employer, so make sure to ask the Human Resource
department about the 401k or 403b rules affecting you as soon as possible
following the start of your job. Remember, maxing out your
contributions to your 401k or 403b plan at work is one of the best tax
shelters available to you during your working years.
this question seems simple enough on the surface, trying to
figure out whether you are an employee or an independent
contractor isn't always so obvious. Add to this
uncertainty that there are a variety of tax advantages and disadvantages that
go along with each option, and you have an issue that the IRS is
very concerned about.
of being classified as an independent contractor include:
security taxes (including the employer match) if you work for more than one
employer and exceed the Social Security Max.
Writing off your
health insurance premiums if you do not have access to health insurance
through another employer.
The IRS is well aware
that there is a lot of subjectivity in this area of these tax rules. They have
tried to standardize how to classify a worker by creating the
Form SS-8, Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding.
The Form SS-8 asks a
variety of questions as they relate the these three areas of control:
Relationship of the
Worker and the Firm
The more answers on this
form that show that the employer maintains control, the more likely the IRS
would consider you an employee and not an independent contractor.
According to the Form
The information provided on Form SS-8 may be disclosed to the firm, worker,
or payer named above to assist the IRS in the determination process. For
example, if you are a worker, we may disclose the information you provide on
Form SS-8 to the firm or payer named above. The information can only be
disclosed to assist with the determination process. If you provide incomplete
information, we may not be able to process your request. See
Privacy Act and Paperwork Reduction
Act Notice in the
separate instructions for more information. If you do not want this
information disclosed to other parties, do not file Form SS-8.
I've only seen the IRS
provide a ruling following the submission of the Form SS-8 a few times, and
each time they have ruled that the worker was an employee of the organization and not
an independent contractor. This is not surprising since the IRS would
prefer that almost everyone be classified as an employee unless it's a situation
where a true independent contactor relationship exists between the worker and
the organization. Remember, from what the IRS has learned by studying the "Tax
Gap", self-employed individuals and small business owners account for
75% of the projected $400 billion tax receipt shortfall each year.
For 2014, the standard deduction for a single individual is $6,200 and
for a married couple is $12,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2014, the personal exemption is $3,950.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $117,000
for 2014, increasing to $118,500 in 2015.
The standard mileage rateis $.56 per business mile as of
January 1, 2014, down from $.565 for 2013.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $17,500 in 2014, increasing to $18,000 n 2015. And if
you'll be 50 or older by December 31st, you can contribute an extra $5,500 into
your 401(k) or 403(b) account this year and $6,000 next year.
The maximum annual contribution to your IRA is $5,500 for
2014. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2015 to make your 2014 IRA
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.