Tax Tips, Strategies for 2014 and Beyond

MARCH 26, 2014
Shomari Hearn, CFP
April 15 is just 2 weeks away, but many people can still cut their 2013 income taxes, and almost everyone can plan to create a more tax-efficient strategy for 2014 and beyond.
 

It may not be too late to contribute more to your retirement plan or IRA
You can still contribute if you haven’t filed your tax return yet, are eligible, and haven’t maxxed out yet.
 
If your employer offers a retirement plan, contributions to a traditional IRA are fully deductible for married couples with modified adjusted gross income (MAGI) up to $95,000 and single taxpayers making up to $59,000 MAGI.
 
If you’re not covered by a retirement plan at work, your income will not limit your deduction, unless your spouse is covered, in which case your deduction is limited once MAGI exceeds $178,000. The deadline for making 2013 contributions is April 15. The maximum contribution for 2013 (and 2014) is $5,500; if you’re older than 50, the maximum is $6,500.
 
Contributions to Simplified Employee Pensions (SEP) IRAs, SIMPLE IRAs, Keogh plans, and cash-balance plans reduce your adjusted gross income (AGI) on a dollar-for-dollar basis for all taxpayers. If self-employed, you can make 2013 contributions as late as Oct. 15, 2014, if you apply for an automatic extension for filing your return.
 
Retirement contributions are valuable for people in all tax brackets—especially for the affluent who are paying the new higher tax rates.


Don’t miss any deductions or credits you’re eligible for
Some deductions are often overlooked because they can be taken only once in a while or are little known. They include:
• Moving expenses. You may be able to deduct qualified moving expenses if you moved because of a change in your job location or because you started a new job.
• Adoption expenses
• Residential energy credits for installing solar electric, solar water-heater, and qualified geothermal heat-pump systems. Energy-saving windows, doors, and insulation installed in 2013 (but not after that) also qualify.
• Private mortgage insurance premiums.
 
Couples making more than $250,000 are hit with higher taxes
There’s a new 3.8% tax on net investment income (NII), including interest, dividends, annuities, royalties, rents, and capital gains. It applies to the lesser of NII or MAGI above the threshold for earned income: $250,000 for couples filing jointly and $200,000 for singles.
 
Under the new Medicare tax, married couples with earned income above $250,000 and single people earning above $200,000 also pay an additional 0.9% on wages or self-employment income. High earners now also face a stealth tax because of reductions in itemized deductions and personal exemptions once their income passes $300,000 for married couples filing jointly and $250,000 for single taxpayers.
 
Investing in tax-free bond funds can help because municipal bond income does not count toward either AGI or MAGI. And spreading sales of appreciated securities over 2 or more years can help too, as can boosting retirement plan contributions. It’s too late to do anything about 2013 401(k) contributions, but you can increase them for 2014.
 
Same-sex couples now file as married; filing separately may save money
All legally married same-sex couples are treated as married by the IRS starting in 2013. No matter where they live, couples must file their federal tax returns jointly or as married filing separately.
 
Most couples do best by filing jointly, but a few save by filing separately, so it’s a good idea for couples who are filing as married for the first time to prepare returns both ways to see which is best.
 
People in the 10% and 15% brackets pay long-term capital gains tax, but take caution
If you have too big of a gain it may push you up into a higher tax bracket, which will lead to a 15% or 20% rate on long-term gains. Spreading out sales of securities over 2 or more years can prevent that. For taxpayers in the top tax bracket, the total tax rate is 23.8% on capital gains: the new top rate of 20%, plus 3.8% NII tax.
 
Place investments that don’t qualify for the capital gains break in a retirement account
Collectibles like gold and silver bullion aren't eligible for the normal long-term capital gains rates. Instead, these collectibles are taxed at a capital gains rate of 28%. This special rate applies to both physical metals and the exchange-traded funds (ETFs) that own them, such as gold, silver, and precious metals ETFs. Because of that, it’s wiser to hold such ETFs in a retirement account.
 
Shomari Hearn, CFP, enrolled agent, is vice president of Palisades Hudson Financial Group. Based in the firm’s in Fort Lauderdale office, he can be reached at info@palisadeshudson.com.
 
Palisades Hudson is a fee-only financial planning firm and investment advisor with more than $1.2 billion under management. It offers investment management, estate planning, insurance consulting, retirement planning, cross-border planning, business valuation and appraisal, family-office and business management, tax preparation, and executive financial planning. Branch offices are in Atlanta; Fort Lauderdale, FL; and Portland, OR. Read the firm’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/current-commentary. Twitter: @palisadeshudson.



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