Sep 8, 201404:12 PMTaking Stock
with Nathan Brinkman
10 basic tax to-dos for the rest of 2014
(page 1 of 2)
Here are 10 things to consider as you weigh potential tax moves between now and the end of the year.
1. Make time to plan: Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There’s a real opportunity for tax savings when you can assess whether you’ll be paying taxes at a lower rate in one year than in the other. So carve out some time.
2. Defer income: Consider any opportunities you have to defer income to 2015, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.
3. Accelerate deductions: You might also look for opportunities to accelerate deductions into the 2014 tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2015, could make a difference on your 2014 return. Note: If you think you’ll be paying taxes at a higher rate next year, consider the benefits of taking the opposite tack — looking for ways to accelerate income into 2014 and possibly postponing deductions.
4. Know your limits: If your adjusted gross income (AGI) is more than $254,200 ($305,050 if married filing jointly, $152,525 if married 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.
5. 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. For example, if you’re subject to the AMT in 2014, prepaying 2015 state and local taxes probably won’t help your 2014 tax situation, but it could hurt your 2015 bottom line. Taking the time to determine whether you may be subject to AMT before you make any year-end moves can save you from making a costly mistake.