Tax Season 2014 has been over for about two and a half months and now it’s time to think about tax planning for tax year 2014. Items which could impact your 2014 taxes include: certain life events and expired tax provisions.
Certain Life Events
Have you recently had a birth, adoption or someone passed away in your family? Have you gotten married, divorced, retired, or changed jobs this year? If any of these life events did occur for you in 2014, now would be a great time to discuss the potential impact on your 2014 taxes. For example:
1) For Qualifying Children under the age of 17, a tax credit up to $1,000 per qualifying child may be allowed, which may be refundable.
2) If you have retired or are planning on retiring, it would be wise to do an analysis of how your change in income resulting from receiving IRA or pension distributions, and/or Social Security benefits will impact your tax liability.
3) A divorce or marriage could impact your tax situation in multiple ways. For example: alimony paid or received, deductions for mortgage interest and real estate taxes on your home, QDROs (qualified domestic relations orders), and potential changes in the standard deduction and personal exemptions allowed.
Expiring Tax Provisions
Given the current political climate, it is not known if or when an agreement on extending the Expiring Tax Provisions (“extenders”) may be reached. These extenders have made tax planning a challenge for both taxpayers and tax professionals. Therefore, if any of these provisions impact you, it is important that you are aware of the possible tax consequences:
1) Sales Tax Deduction: Prior to January 1, 2014, taxpayers may have been eligible to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. This included the sales tax paid on the purchase of a vehicle. This deduction is no longer available to individuals.
2) Mortgage Insurance Premiums: Prior to January 1, 2014, taxpayers may have been eligible to deduct the amounts paid for qualified mortgage insurance premiums along with their mortgage interest (subject to adjusted gross income limitations). Effective January 1, 2014, no deduction is allowed for these premiums paid or accrued after this date.
3) Tax-free Distributions from Individual Retirement Plans for Charitable Purposes: Prior to January 1, 2014, taxpayers over 70 ½ may have been eligible to exclude from their gross income distributions up to $100,000 from their IRA to a qualified charitable organization. This permitted taxpayers to satisfy their Required Minimum Distribution (RMD) and not include the amount in their income. As this reduced their Adjusted Gross Income (AGI), which favorably impacted the taxable amount of Social Security benefits received, this was a large tax advantage for taxpayers.This special distribution provision is not available for distributions after 2013.
4) Qualified Principal Residence Debt Exclusion: Prior to January 1, 2014, the discharge of principal residence debt (qualified mortgage on a taxpayer’s main home incurred to buy, build or substantially improve his or her main home) was generally excluded from gross income. As many taxpayers are still experiencing financial difficulties resulting in foreclosures, short sales or debt forgiveness on their primary residence, the tax ramifications for 2014 will have major tax consequences.
Other Steps to Consider Before the End of the Year
You should thoroughly review your situation before year end to determine the best tax strategies for 2014 and the impact on 2015 as well. Accelerating income/deferring deductions into 2014 or deferring income/accelerating deductions to 2015 are just a couple of approaches that could benefit you.
If you have any foreign assets, be aware that there are reporting and filing requirements for those assets. Noncompliance carries stiff penalties.
For those reading, please feel free to call or email us at your convenience to set up an appointment to estimate your tax liability for the year and discuss any questions you may have.
As always, thank you for checking out our latest blog post, and we hope everyone has a great fourth of July!