Year-End Tax Issues

What's left to be done for 2014

It's that time of year when tax-payers get to make decisions on the timing of cash flows - timing of a few days that can mean real dollars.

The general rule of thumb is this:

  • If you will be in a higher marginal tax bracket next year:
    • accelerate income
    • delay deductions
  • If you will be in a lower (or, like most of us, the same) marginal tax bracket next year:
    • delay income
    • accelerate deductions
  • Charitable contributions
    • If you want the deduction in 2014, make sure you give enough lead time to the charity to process the gift before year-end. Though your check may say December 30 and you postmarked it Dec 31, you don't want to be explaining to the IRS why your letter from the charity says "Thank you for your contribution on January 4".
    • Make sure you follow the IRS guidelines for documentation, especially for non-cash gifts. They can be found in IRS publication 526.
  • Harvesting tax losses in your portfolio
    • Holding periods are based on transaction date, not settlement date
    • Do not let tax decisions force you into poor investment decisions
    • Beware of 'wash sales' - selling a stock and buying it back within 30 days erases the loss for tax purposes
  • Gifting
    • Any individual can gift $14,000 per year to any other individual without tax consequences. If you want to give more, plan it around year-end - gifting $14,000 in December and another $14,000 in January
    • Need to give more, say to an adult child and their spouse? You can gift the child and the spouse $14,000 each in 2014 & 2015 as can your spouse for a total of $14,000 x 2 years x 2 grantors x 2 recipients for a total of $112,000 before the Rose Bowl ends.
  • 401(k)
    • You probably have one paycheck left to stuff your 401(k) up to $17,500 ($23,000 if you're 50 or older)
    • Self-employed taxpayers should plan on making their non-profit sharing contribution to their solo 401(k) by year end.
  • Business transactions
    • Speaking of the self-employed: if you are on a cash basis, accelerate your expenses, including Section 179 expenses into this year if you are going to be in the same marginal tax bracket.
    • Take your income in the year with the lowest marginal tax rate if you have a choice
  • Other deductions
    • Pay your state income tax estimates and, if you won't pay more in penalties than you save in taxes, your property taxes in the year you are in the highest marginal bracket. 
    • If you can lump multiple years of miscellaneous or medical deductions together by delaying or accelerating payments, it may pay to do so as these are subject to a percent of Adjusted Gross Income (AGI) threshold each year before they are deductible 
    • These only work for those who itemize deductions and even then beware that the Alternative Minimum Tax (AMT) may erode some of these benefits

Changes for 2015

  • 401(k), 403(b), TSP, and most 457 plan contributions will be raised to $18,000 for workers under 50
  • Catch-up contributions will increase to $6,000 (from $5,500) for those 50 y.o. or older
  • Traditional IRA phase-out for tax deductions increases $1,000 for singles to between $61,000 (fully deductible) and $71,000 (non-deductible)
  • The standard deduction is increasing to $6,200
  • For now, the higher education tuition deduction is set to expire Dec. 31, 2014
  • Business mileage deductions are increasing
  • Tax brackets will be adjusted for inflation
It should be noted that Congress is notorious for last-minute (and retroactive) tax law changes, so this list may change before you file.