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Time to start making your year-end 2014 tax plans!

— even though this year’s tax rules aren’t finalized yet. As usual, tax writers are waiting until the last minute to revive a series of tax breaks that lapsed after 2013. These include the deduction for state sales taxes in lieu of income taxes and direct transfers from IRAs to charity of up to $100,000 for folks age 70 ½ and up. Despite lawmakers’ delay in reinstating the provisions, we think you can bank on them for 2014 and 2015.

The key to 2014 end-of-year tax planning is simple:

  • You have to think about both 2014 and 2015 as you weigh your options. You want to cut your tax bill over both years, not just one.
  • Review your options to mitigate taxes in prior years, to see if you have any further deductions or can profit from state tax credits that you either missed or can purchase from someone else.
  • Most filers will save by accelerating write-offs into 2014 and deferring income to 2015, since tax rates aren’t changing. If you‘ll be in a higher bracket next year, consider doing the opposite…accelerating income and delaying your deductions. There are many different methods for doing this (all are completely legit), but you have to be careful.
  • State and local income taxes are one of the easiest write-offs to select the write-off year. Mailing your Jan. 2015 estimate in late Dec. lets you claim the deduction this year.
  • Donations. You can accelerate contributions planned for 2015 into 2014, but you must charge them or mail the checks by Dec. 31 to ensure a 2014 write-off. Try to make your donations with appreciated stock that you’ve owned for over a year. This way, you deduct the full value and never pay capital gains tax on the appreciation. If you need a large deduction, say, 50% of your income, try looking at a land conservation easement partnership (a charitable partnership). They are simple and effective. We can help you with this.
  • Medicals. If you’ve topped the 10% or are close to it, think about getting and paying for elective procedures this year. You want to bundle expenses in one year and have them scarce in another. Pre-paying for premiums or healthcare items can help with this.
  • Interest. If you make the Jan. 2015 mortgage payment on your residence before the end of this year, you can deduct the interest portion in 2014. However, unless you do the same thing in 2015, you’ll deduct only 11 months of interest.
  • Some filers can hop in and out of the standard deduction from year to year. If your itemizations just top the standard deduction amount, try shifting some to 2014 and take the standard deduction in 2015. If you don’t have enough this year to itemize, delay some and itemize in 2015. This year’s standard deduction for couples is $12,400, plus $1,200 more for those 65 and older. Singles get $6,200…$7,750 if 65 and over. Household heads get $9,100 plus $1,550 if they are 65. Next year’s base amounts will rise by $200 for joint filers, $150 for heads of household and $100 for singles.
  • The alternative minimum tax (AMT) can throw a monkey wrench into your plans. Beware…if you trigger this tax or think you might, definitely get pro advice.
  • Paying your Jan.2015 state tax estimate in 2014 won’t work. And interest on home equity loans is not deductible for the AMT unless you use the proceeds to buy, build or renovate your main home. If you exercise an incentive stock option in 2014, the discount you get is hit by the tax unless you sell the shares by Dec. 31. And you won’t benefit from a 2014 payment of a real estate tax bill due in early 2015.
  • Taking certain types of deductions makes you more likely to owe the AMT, so be careful how you do this…sometimes it benefits to move deductions between years solely to limit your AMT exposure.
  • Many write-offs must be added back when you calculate AMT liability: Sales taxes, state income taxes, property taxes, some medicals and most miscellaneous write-offs. And large gains can trigger the tax if they cost you some of your AMT exemption.
    The first step is to maximize deductions. Then, decide what year to take the deductions in. Later, mitigate your tax burden even further by maximizing federal and state tax credit opportunities.


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Dan Lucas
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