Monthly Archives: November 2014

Time to make year-end tax moves

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!  

Tax season finally ended, with millions of tax stragglers getting their 2013 returns into the Internal Revenue Service by the Oct. 15 extension deadline.

Now it’s time to think about 2014 taxes. Here are some info from our friends at Bank Rate.

© Garsya/Shutterstock.com

Sorry. I know you’d like to not think about taxes for a while. But if you snooze, you lose when it comes to taxes.

Tax questions to ask now

Taxes, like other financial planning efforts, require a strategy. The best starting point in any of these plans is where you are now.

Look at your recently filed Form 1040 to find out what you did (or didn’t do) this year. It will offer guidance on what you should do for the 2014 tax year.

What was your 2013 taxable income? Do you expect it to be about the same this year? Does it look like you might be moving into a higher tax bracket? If so, now is the time to look into the possibility of deferring income.

Were you surprised, pleasantly or otherwise, by your tax bill? Did your income level cause you to lose some of your personal exemption amounts and itemized deductions? Did you have to pay the 3.8 percent net investment income tax or 0.9 percent added Medicare surcharge?

Get help now

The tax code is increasingly complex, said Stolz, which is why it is critical to analyze how it affects you. “If you’re comfortable doing these types of analyses yourself, keep doing that,” said Stolz. Bankrate’s tax guide and Tax Adviser can help you answer many of your tax questions.

But if you need more direct, personal help, get it.

“Accelerating this, slowing down that, you might want to work with someone,” Stolz said. “Tax planning is like a clown’s long balloon. When you squeeze one area, it goes up in another.”

And it’s better to seek professional tax advice now, when changes can be made by year’s end, rather than trying to deal with a misshapen tax balloon once 2015 arrives.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Eight Tips for Deducting Charitable

If you are looking for a tax deduction, giving to charity can be a “win-win” situation. It’s good for them and good for you. Here are eight things you should know about deducting your contributions to charity:DeathtoStock_Creative Community7

1. You must donate to a qualified charity if you want to deduct the contribution. You can’t deduct contributions to individuals, political organizations, or candidates.

2. To deduct your contributions, you must file Form 1040 and itemize deductions.

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your contribution that’s more than the value of what you received in return. Examples of such benefits include merchandise, meals, tickets to an event, or other goods and services.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, “Noncash Charitable Contributions,” if your deduction for all noncash contributions is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, to claim a deduction. It can be a canceled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date, and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the contribution.

Individual Year End Tax Planning Ideas

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!  

DeathtoStock_Simplify10As we approach year end, it’s time again to focus on last-minute moves you can make to save taxes — both on your 2014 return and in future years. Here are a few ideas.

Maximize the benefit of the standard deduction. For 2014, the standard deduction is $12,400 for married taxpayers filing joint returns. For single taxpayers, the amount is $6,200. Currently, it looks like these amounts will be about the same for 2015. If your total itemized deductions each year are normally close to these amounts, you may be able to leverage the benefit of your deductions by bunching deductions in every other year. This allows you to time your itemized deductions so they are high in one year and low in the next. For instance, you might consider moving charitable donations you normally would make in early 2015 to the end of 2014. If you’re temporarily short on cash, charge the contribution to a credit card — it is deductible in the year charged, not when payment is made on the card. You can also accelerate payments of your real estate taxes or state income taxes otherwise due in early 2015. But, watch out for the alternative minimum tax (AMT), as these taxes are not deductible for AMT purposes.

Consider deferring income. It may be beneficial to defer some taxable income from this year into next year, especially if you expect to be in a lower tax bracket in 2015 or affected by unfavorable phase out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so forth) in 2014. By deferring income every other year, you may be able to take more advantage of these breaks every other year. For example, if you’re in business for yourself and a cash-method taxpayer, you can postpone taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive payment for them until early 2015. You can also postpone taxable income by accelerating some deductible business expenditures into this year. Both moves will defer taxable income from this year until next year.

Secure a deduction for nearly worthless securities. If you own any securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year. You can deduct a loss on worthless securities only if you can prove the investment is completely worthless. Thus, a deduction is not available, as long as you own the security and it has any value at all. Total worthlessness can be very difficult to establish with any certainty. To avoid the issue, it may be easier just to sell the security if it has any marketable value. As long as the sale is not to a family member, this allows you to claim a loss for the difference between your tax basis and the proceeds (subject to the normal rules for capital losses and the wash sale rules restricting the recognition of loss if the security is repurchased within 30 days before or after the sale).

Invest in tax-free securities. The most obvious source of tax-free income is tax-exempt securities, either owned outright or through a mutual fund. Whether these provide a better return than the after-tax return on taxable investments depends on your tax bracket and the market interest rates for tax-exempt investments. With the additional layer of net investment income taxes on higher income taxpayers, this year might be a good time to compare the return on taxable and tax-exempt investments. In some cases, it may be as simple as transferring assets from a taxable to a tax-exempt fund.

Again, these are just a few suggestions to get you thinking. Please call us if you’d like to know more about them or want to discuss other ideas.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.