There's still time to cut your 2014 federal income taxes, plus create a more tax-efficient strategy for 2015 and beyond.
You can probably still cut your 2014 federal income taxes, plus create a more tax-efficient strategy for 2015 and beyond.
Don’t overlook unusual deductions or credits—sometimes even a car crash can be deductible. These deductions are often overlooked because they can be taken only once in a while. They include:
• Casualty losses from causes such as theft, car accidents, earthquakes, terrorist attacks, and storms. Claim casualty and theft losses as an itemized deduction on Schedule A - Itemized Deductions. You must subtract $100 from each casualty or theft event that occurred during the year after you have subtracted any salvage value and any insurance or other reimbursement. Then, add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year.
• Moving expenses. You may be able to deduct qualified moving expenses if you moved because of a change in your job location or because you started a new job.
• Adoption expenses.
• Private mortgage insurance (PMI) premiums.
Be aware of changes related to the Affordable Care Act. Most taxpayers will simply need to check the box in line 61, Form 1040, to show they had health coverage for all of 2014. But some people will also need to complete new forms related to the ACA.
Use Form 8965, Health Coverage Exemptions, to report marketplace-granted coverage exemption or claim an IRS-granted coverage exemption on the return. Use the worksheet on the form to calculate the shared responsibility payment.
Complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit and to claim this credit on your return.
On Form 1040, line 46, enter the advance payments of the premium tax credit that must be repaid. On line 69, if you’re eligible, claim the net premium tax credit, which is the excess of the allowed premium tax credit over advance credit payments.
Contribute to your retirement plan or IRA by April 15—or by October 15 if you’re self-employed. You can still contribute if you haven’t filed your 2014 tax return yet, are eligible, and haven’t already put in the maximum. You can even set up a new IRA by April 15. The maximum annual 2014 IRA contribution is $5,500; $6,500 for people 50 and older.
If you’re single, or married but neither you nor your spouse is covered by a retirement plan at work, you’ll be able to get a full IRA deduction regardless of your income. However, if you or your spouse are covered by a retirement plan at work, your deduction may be limited.
If you are covered by an employer retirement plan, contributions to a traditional IRA are only fully deductible for married couples with modified adjusted gross income (MAGI) less than $96,000, and single taxpayers making below $60,000. Above these income amounts your deduction will be limited or completely phased out. If your spouse is covered by a plan from work, but you are not, your deduction is limited once your MAGI exceeds $181,000.
Contributions to Simplified Employee Pensions (SEP) IRAs, SIMPLE IRAs, Keogh plans, and cash-balance plans reduce your adjusted gross income (AGI) on a dollar-for-dollar basis for all taxpayers. This helps you save on both current taxes and future taxes as you won’t be taxed on any earnings until you withdraw money.
If you’re self-employed and don’t have the cash to contribute by April 15, you can get 6 more months. Apply for an automatic six-month extension to file your return. (You’ll have to pay any taxes due by April 15.) Now you can make 2014 contributions as late as Oct. 15, 2015.
Retirement contributions are valuable for people in all tax brackets—especially for the affluent who are paying the highest tax rates.
Invest in tax-free bond funds if you’re in the top tax brackets. A couple filing jointly making at least $250,000 or a single person making at least $200,000 in MAGI will pay an additional 3.8% tax on net investment income (NII), on top of their regular tax.
That makes munis even more attractive for people in the top tax brackets.
People in the 10% and 15% tax brackets still pay no tax on long-term capital gains, but take caution. If you have too big of a gain it may push you up into a higher tax bracket, which will lead to a 15% or 20% rate on long-term gains. Spreading out sales of securities over two or more years can prevent that. For taxpayers in the top tax bracket, the total tax rate is 23.8% on capital gains: the new top rate of 20%, plus the 3.8% NII tax.
Anthony Criscuolo, who holds the Enrolled Agent and Certified Financial Planner designations is based in Palisades Hudson Financial Group’s Fort Lauderdale office. Palisades Hudson is a fee-only financial planning firm and investment adviser based in Scarsdale, NY, with $1.3 billion under management. It offers investment management, estate planning, insurance consulting, retirement planning, cross-border planning, business valuation and appraisal, family-office and business management, tax preparation, and executive financial planning.
Branch offices are in Atlanta, Fort Lauderdale, FL, and Portland, OR.
The firm’s new book, Looking Ahead: Life, Family, Wealth and Business After 55, is a paperback and Kindle ebook is available from Amazon at http://tinyurl.com/ocro2dx and Barnes & Noble at http://tinyurl.com/m9ca3qk. Read Palisades Hudson’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/current-commentary. Twitter: @palisadeshudson.