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Year-End Planning with the Latest Changes


There are special tax challenges because of 2013 changes and the overturn of DOMA. Avoid tax penalties, plan for health insurance changes and capture new tax savings.

Some year-end financial maneuvers are evergreen, but this year presents special challenges and opportunities.

Estimate your 2013 taxes

Make sure you’ve paid enough to avoid penalties — especially if you’re high-income and subject to new, higher taxes. This is important for taxpayers who earn significant income not subject to withholding.

Tax rates for most have stayed the same, but the affluent will pay more. In 2013, a new 3.8% tax on net investment income was implemented for single taxpayers with $200,000 of modified adjusted gross income (MAGI) and married couples with $250,000 of MAGI. There is also a new 0.9% Medicare tax on wages and self-employment income starting at $200,000 for single taxpayers and $250,000 for married taxpayers.

The new tax law also limits itemized deductions and personal exemptions taxpayers may claim once adjusted gross income (AGI) exceeds $300,000 for married couples and $250,000 for singles. Single taxpayers with taxable income above $400,000 and married taxpayers with taxable income above $450,000 have seen their marginal tax rate rise from 35% to 39.6% and their long-term capital gains rate go up from 15% to 20%.

Since this is the first year these taxes are in effect, high-income taxpayers may not have planned for them. Make sure you’ve paid enough 2013 tax through withholding and/or quarterly estimated payments to avoid underpayment penalties.

Married same-sex couples

Now, they must file as either married filing jointly or married filing separately — and can file amended past returns for refunds. The IRS recently announced it will recognize the marriages of same-sex couples regardless of what state they live in. They’ll be able to file joint federal income tax returns for the first time.

Same-sex couples married before 2013 can also file amended joint tax returns to claim refunds for prior tax years. The refunds can be substantial.

There’s a three-year limit from the due date of the original tax return or two years from the date the tax was paid — whichever is later — for filing an amended tax return, so now is the time to act.

Most couples save by filing jointly, but a few couples come out ahead by filing separate returns for each spouse. For instance, a childless couple in which one spouse has much higher income and the other spouse has large itemized deductions may benefit.

Running projected returns, for both 2013 and past years, is the only way to determine whether filing jointly or separately is the best for any given year.

Budget for potentially higher health insurance costs in 2014

Your health insurance may cost more or be different once Obamacare is implemented. UPS recently announced that it would no longer provide health coverage to non-union workers’ spouses who can obtain insurance through their own employers. Other companies have increased the fees they charge to cover spouses or raised their employees’ share of premiums.

It’s increasingly important that you understand changes to your health insurance plans and how it will impact your budget in 2014.

Some employees may be considering dropping their company’s plan and buying cheaper coverage through one of the new insurance exchanges set up by the Affordable Care Act. However, if your employer offers health insurance that meets the ACA’s minimum standards and you don’t take it, you won’t be eligible for tax credits you’d ordinarily get by buying coverage through an exchange.

Because you’d lose the credits, the exchange’s policy might not be a better deal.

Boost retirement plan contributions

If you have a 401(k) plan, make sure you’re at least contributing enough to obtain the full company match.

Don’t leave free money on the table. A dollar-for-dollar company match is the only investment that gives you a guaranteed 100 percent return. Contributing more bolsters your retirement savings and lowers your taxable income.

No matter what tax bracket you’re in, you can still contribute more and reduce your taxes.

Contributions to 401(k)s, Simplified Employee Pensions (SEP) IRAs, SIMPLE IRAs, Keogh plans and cash-balance plans reduce your AGI on a dollar-for-dollar basis, no matter how high your income. Contributing reduces taxable income and can mean getting deductions and exemptions you might otherwise lose.

IRA contributions don’t reduce MAGI, however.

ReKeithen Miller is a financial planner with Palisades Hudson Financial Group in Atlanta. He holds the Certified Financial Planner (CFP) certification and can be reached at rekeithen@palisadeshudson.com.

Palisades Hudson (www.palisadeshudson.com) is a fee-only financial planning firm and investment adviser with $1.2 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. Headquartered in Scarsdale, New York, it also has branch offices in Atlanta, Fort Lauderdale, Fla., and Portland, Oregon. Read the firm’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/current-commentary. Follow Palisades Hudson on Facebook at https://www.facebook.com/pages/Palisades-Hudson-Financial-Group-LLC/113720506179 and on Twitter @palisadeshudson.

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