Maximize tax deductions for 2014 with these tips

Posted by Tom Kalinski Founder RE/MAX of Boulder on Sunday, January 18th, 2015 at 9:02am.

The holidays may not be over yet, but the year almost is and so is the opportunity to take advantage of any tax strategies for 2014.

Kelly Campbell of U.S. News & World Report offers these tips to consider cutting losses before the year is up, though he recommends consulting with tax, legal and financial advisor before making any decisions:

1. Offset gains and losses. Those with gains and losses in their portfolio could write off the gains against the losses. If they have more loss than gain, they can take up to $3,000 of loss against ordinary income but must claim the loss by selling the asset or investment that contains it this year. Or it is possible to take additional losses and "carry them forward" to next year. If the decision is to sell an investment at loss, they should plan to buy it back after 30 days minimum to avoid the penalty of breaking wash-sale rules.

2. Fund individual retirement accounts, pension plans, etc. Check into contribution limits for any and all retirement plans, whether 401(K)s, IRA’s, Roth IRA’s and others to make sure they are fully funded – or funded as much as affordable – by the end of the year.

Investors can also consider donating highly appreciated stock to a charity rather than giving it cash, which allows the investor to write off the value of the security without selling the stock or other investment before donating it.

3. Withdraw minimum-required distribution. Those older than 70 and six months must take money out of their qualified plans (if they are not working or contributing to that plan) and IRA’s. The amount they must withdraw is 3.65 percent in the first year, and the amount increases each year. The penalty for failing to do this is 50 percent of the amount not withdrawn.

4. Give $14,000 to someone of your choosing. The annual gift amount a person can give anybody without having to fill out a gift tax return in 2014 is $14,000, but they must give it to the person, entity or charity by the end of the year. Married couples can give $28,000.

Sometimes gifting appreciated stock to a family member in a low tax bracket can also help reduce overall tax liability.

5. Use flex spending dollars. Flex spending plans allow people to put money away before taxes are taken out and use it for qualified medical and dental expenses. But if that money isn’t used in the current tax year, the IRS will allow only $500 to roll over into the next year if the plan allows for it. The remaining amount is “use it or lose it.”

6. Don’t wait to take expenses. Business owners or those self-employed who can deduct expenses should pay them now instead of waiting until next year. This will lower their overall income and, therefore, their taxes. Expenses they can consider paying early are interest, rent, medical insurance premiums, vendor expenses and more.

7. Pay January mortgage payment early. Making the January mortgage payment in December also means paying the January interest, so home owners can write it off on 2014 income taxes instead of waiting - a small deduction, but every little bit counts.

8. Combine Schedule A deductions. Many Schedule A deductions require taxpayers to meet certain thresholds before they can take a specific deduction. The medical/dental deduction must reach 10 percent of adjusted gross income, and the miscellaneous expense deduction must be 2 percent of adjusted gross income. Taxpayers should combine all of the proper expenses to see if they can meet that specific deduction’s minimum.

9. Complete a mock tax return. Taxpayers should do a mock tax return using tax software, such as TurboTax or H&R Block software, so they know their potential tax liability. This can help with knowing how much of an IRA contribution deduction they can take, the effects of a Roth conversion, if they are subject to the Alternative Minimum Tax, the potential tax bill they may have to pay by April 15, and a number of other important things they might want or need to know early.

Not all of these tips apply to everyone, so determine which ones do apply and implement them as appropriate. If necessary, talk with a tax accountant, investment advisor or financial planner to get additional assistance.

 

Tom Kalinski 
Owner and Founder
RE/MAX of Boulder
303-441-5620
tomkalinski33@gmail.com

1 Response to "Maximize tax deductions for 2014 with these tips"

Nate Burger wrote: Taxes can be so overwhelming and stressful! Tips like these really help guide you through all of that confusion.

Posted on Sunday, December 21st, 2014 at 6:39pm.

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