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It's that time of year again when we start making
year-end tax plans!
This year, year-end tax planning and planning ahead for 2015 is more challenging than usual due to the numerous tax provisions that expired at the end of 2013. As usual, tax writers have delayed the revival of a series of tax breaks that lapsed in 2013, but the U.S. Senate is expected to approve the tax extenders within days. The key to year-end planning is simple: You have to consider both 2014 and 2015 as you weigh your options. You'll want to cut your tax bill over both years not just one. Most filers will save by accelerating write-offs into 2014 and deferring income to 2015 since tax rates are not changing. If you'll be in a higher tax bracket next year consider doing the opposite.
 Year-End Tax Planning for IndividualsHere are several examples of what a taxpayer might do to accelerate deductions:
- Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax and you are not paying alternative minimum tax.
- Pay your entire property tax bill, including installments due in year 2015, by year-end. This does not apply to mortgage escrow accounts. However, unless you do the same in 2015, you will not have a real estate tax deduction in 2015.
- Pay your January 2015 mortgage payment on your residence before the end of the year. However, unless you do the same thing in 2015, you'll be deducting only 11 months of interest in 2015.
- It may be beneficial to pay 2015 tuition in 2014 to take full advantage of the American Opportunity Tax Credit, an above the line deduction worth up to $2,500 per student to cover the cost of tuition, fees and course materials paid during the taxable year if you have not already reached the limit on eligible tuition payments.
- Try to bunch "threshold" expenses, such as medical and dental expenses (10 percent of AGI began in 2013) and miscellaneous itemized deductions. For example, you might pay medical bills or unreimbursed employee business expenses in whichever year they would do you the most tax good.
(Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction)
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Year-End Tax Planning for Businesses
The fate of several business-related tax extenders such as bonus depreciation, Section 179 expensing and R&D credits that expired at the end of 2013 is uncertain, but there are still a number of end of year tax strategies businesses can use to reduce their tax burden for 2014.
 Purchase New Business Equipment
In 2014, businesses can elect to expense the entire cost of most new equipment up to a maximum of $25,000 for the first $200,000 of qualified property** placed in service by December 31, 2014 (Section 179 deduction) - subject to 2013 threshold extension by Congress. Keep in mind that the Section 179 deduction cannot exceed net taxable business income.
**Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.
 Retirement Plans
There are a variety of retirement plans that can provide significant tax savings. Most retirement plans need to be setup before the end of 2014.
 Perform Projections
Take a good look at your financial statements. Run a profit and loss and compare it to the prior year profit and loss. Are there significant changes? Are you anticipating an increase or decrease in sales and/or expenses through the end of the year? If needed, share that information with us to find out if you must adjust your estimated tax payments accordingly.
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Call Us First!
These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2014, but depending on your specific situation some of these moves may not be available to you. If you'd like more information about tax planning, give us a call at 508.871.7178.
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Partners Smith, Sullivan and Brown
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Questions?
At Smith, Sullivan & Brown, PC, our dedicated professionals listen to your auditing and accounting, tax preparation, and small business questions. We provide personalized solutions to you, your family, business or nonprofit, all at a reasonable price.
Our accounting team has extensive experience. We understand your frustration when you tell us that you've paid top dollar for accounting services - only to learn that there's a junior-level person working on your engagement. Or, that it's mid-March and your accountant isn't returning emails or phone calls because your files have been put on the back burner so that they can focus on the tax return crunch. At Smith, Sullivan & Brown, PC we only send senior-level accountants into the field and they remain accessible to you throughout the year. A dedicated team is assigned year-round specifically to our nonprofit clients, so that deadlines are met on time and your questions are never ignored. Established in 1993, Smith, Sullivan & Brown, PC is for you if you value communication, one-on-one attention, and "hands-on" expertise from experienced senior-level accountants. Whether you have a project to bid on now, or in the near future, contact us to schedule an introductory meeting, we'd love to meet you! The information contained in this electronic message and any attachments to this message are intended for the exclusive use of the addressee and may contain confidential or privileged information. If you are not the intended recipient, be aware that any disclosure, copying, distribution, dissemination or use of the contents of this message is prohibited. If you have received this message in error, please notify the sender immediately and destroy all copies of this message.
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