End of Year Tax Moves
Posted Dec 8 2014, Email Blast Series
Ever try to put toothpaste back in the tube? Same as trying a tax move after December 31. Here are some things to consider-
If you are pregnant, don’t have the first baby born of 2015. The glamour isn’t worth it. And it is usualyl rigged, so you’ll lose the free car from Oprah. Having a child in 2014 puts about $1,200 to $1,400 in your pocket come tax time, and the refund comes in a Wal-Mart giftcard where diapers are 2 for 1.
If you get a big bonus in December, put all of it in your 401k.. almost as fun as putting it all on Red in Vegas (it is Christmas time). As usual, sell losing stocks and buy them back after 31 days to reset your cost basis and take your losses this year- be wary of wash sales which disallow your losses.
Charitable donations are always a good idea. But understand how cash works- you have to separate with a $1,000 to save $200 to $300 in taxes. Might not make sense given cash and taxes. Merchandise, however, is always a good idea since the money is spent.. you just need to donate it to an organization. A $1,000 contribution in used stuff still equates to $200 to $300 in tax savings (cash), and it didn’t require you to spend cash today to get the cash.
Flex Spending (FSA)
Flex spending accounts have changed- there are now two options. The old traditional way, and the rollover. Your company might have switched to the $500 rollover, but the medical expenses must be paid by the end of the year to qualify for reimbursement. Understand yours, or lost out on this nice tax incentive.
Are you phased out of a Roth IRA because of high incomes? Convert your IRA to a Roth IRA through the backdoor Roth conversion. And if your income is unusually low in 2014, then the tax hit will be less and you get to start tax-free growth with a Roth IRA. Need modeling? Ask us!
Conversely, if your income is unusually high in 2014, pay your property taxes in December even though not due until next year. Taxpayers are generally cash-based meaning that you recognize income when received and you recognize expenses when you write the check.
For small business owners, if your net business income after expenses is over $30,000 consider an S Corp election to save self-employment taxes. About 5 to 6% can be saved overall. You can also buy equipment, but only if the purchase is needed- don’t manufacture reasons to spend money unless 911s are on sale. Cash is still king. But if a required purchase is coming up, perhaps do it in December. Section 179 has taken a hit, but should be retroactivated to higher amounts. More for small business ownsers- max out your i401k or solo K with a December bonus. Consider putting your spouse or children on the payroll too- there are rules of course, but this could a great way to bump your retirement savings and get a tax deduction. Huh? Ask us. We’ll explain. Any other questions or concerns, please give us a call or send an email. Happy Holidays and Merry Christmas, and let’s not forget.. Happy Boxing Day to our Canadian friends and clients. Go Avs.