Oct 27, 201404:31 PMSmall Business, Big Ideas
with Jean Willard
5 tax-planning opportunities to think about right now
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As 2014 draws to a close, you have more tax-planning opportunities available to you than ever before, but you also face more tax challenges. More than 50 popular tax provisions expired at the end of 2013 (many are projected to be reinstated, but as of today they have not been), so some new planning techniques are going to be needed.
One of the first things you should do is perform an overall financial checkup. The end of the year is always a good time to assess your current financial situation and plan for the future. You should think about cash-flow, health care, retirement, investment, and estate planning. Check wills, powers of attorney, and health care proxies for changes that may have occurred during the year. Use the open enrollment period to reconsider employer-sponsored programs that could reduce next year’s taxable income. HSAs and flexible spending accounts for dependent care or medical expenses allow you to use pre-tax dollars. Remember, it’s never too early or too late to start planning for the future.
Here are five other important 2014 tax-planning considerations you should be thinking about now:
1. Accelerate deductions and defer income: Deferring tax is a cornerstone of tax planning. Generally, this means accelerating deductions into the current year and deferring income into the next year. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income, or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments, and real estate taxes. Donating appreciated stock is an especially valuable tool. You are allowed to take the deduction, but you do not need to pick up the appreciation as taxable income.
2. Make up a tax shortfall with increased withholding: Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of being assessed an underpayment penalty, try to make up the shortfall through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.
3. Don’t squander your gift tax exclusion: You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year. For example, a couple with three grown children who are married could give each couple $56,000 each and remove a total of $168,000 gift tax-free in a single year. Even more could be given tax-free if grandchildren are included.