2014 Year End Tax Planning Memorandum

The 2014 year has been relatively quiet regarding new tax legislation, but several changes have been put in place. As the year winds down, it is a good time to review your tax and gift strategies. This letter may be used as a checklist to ensure you are well-positioned for the year ahead. Strauss Attorneys PLLC is able to answer or address any questions or concerns you may have in these and other areas. Please call us to assist you in planning and achieving your goals.

Tax Matters

1. IRA Rollovers. The long-standing “one rollover per IRA per year” rule has been rescinded and replaced with a new rule that limits rollovers to one per IRA in any 12 month period. The new rule begins January 1, 2015.
2. Withholding. Now is a good time to review and update your current tax withholding and/or estimated tax payments. Update your withholding or estimated tax payments with a keen eye on life changes over the past year and into the future. Events such as a marriage, divorce, birth of child, or starting a new business may change the amount of withholding or estimated tax you wish to implement.
3. Income Tax Rate. The top income tax rate is 39.6% for individuals with taxable income over $400,000 ($450,000 if filing jointly). If your taxable income approaches or exceeds that threshold, you should consider strategies for reducing your taxable income. A number of strategies come into play, including deferring income to next year, accelerating deductible expenses (assuming that does not trigger the Alternative Minimum Tax), accelerating charitable contributions, or making an extra mortgage payment or paying real estate taxes in December instead of January.
4. Investment Income. The capital gains tax rate for those in the top tax bracket is 20%. If you realized or expect to realize significant capital gains, you may consider offsetting those gains by selling some depreciated investments.
5. Health Care Costs. Beginning in 2013, the threshold for deducting medical expenses rose from a minimum of 7.5% to 10% of Adjusted Gross Income. If your expenses do not reach this threshold, one may consider contributing to a tax-advantaged health care account. Contributions to such an account are pre-tax or tax deductible and withdrawals from the account may be tax free (qualifications, rules and limits apply).

Retirement and Education Accounts

1. Retirement Plan Contributions. You should be on track to contribute the maximum allowable amount. Deductible contributions reduce your taxable income, and thus reduce your income tax liability. For 2014, the maximum contribution to a 401(k), 403(b) or 457 plan is $17,500, but if you are 50 years old or older, you may make an additional catch-up contribution of $5,500 to a 401(k) or 403(b) plan. The maximum contribution to a Roth or traditional IRA is $5,500, but if you are 50 years old or older you may make an additional catch-up contribution of $1,000.
2. 529 Plans. Contributions to a 529 plan are not tax deductible; however, a 529 plan is advisable over a traditional taxable account. Earnings on plan assets are not susceptible to Federal tax and may not be subject to State tax so long as the income earned is used for qualified education expenses.
3. Required Minimum Distributions. If you are 70½ or older and have a traditional IRA, a Simplified Employee Pension (SEP) plan, or a Saving Incentive Match Plan for Employees (SIMPLE) IRA, you must take your required minimum distribution for 2014. Consider using tax-efficient investment strategies to reduce the tax on the income you earn on the distributed amount.

Estate Planning and Gifts

1. Gifting Options. Gifting may be a good way to reduce your taxable estate. The Unified Credit for Estate and Gift Taxes was raised for inflation in 2014 so that tax applies only to estates greater than $5,340,000 ($10,680,000 for married couples). If you used the lifetime gift exemption of $5,250,000 through 2013, you can add $90,000 to that exemption in 2014. The annual gift tax exclusion remains at $14,000 for 2014. If you are married, you may gift up to $28,000 per recipient this year without any Federal gift tax ramifications by using the gift-splitting rules.
2. Education. Gifting to a 529 plan not only funds a loved one’s education, but also may reduce your income or future estate taxes. For 2014, you can make an accelerated gift of up to $70,000 ($140,000 if married) per beneficiary and have that gift treated as though it was made over a five year period for gift tax purposes.
3. Charities. There are no income thresholds for deducting charitable donations. If you donate or donated to a qualified charity in 2014, you may be able to claim the gift as an itemized deduction in full.

The end of 2014 is fast approaching, and that means it is time to carefully review your estate plan and investment portfolio to ensure all matters are in proper order. Being up to date and organized are extremely important to ensure and implement the best possible tax strategies. Please do not hesitate to call on Strauss Attorneys PLLC for any assistance we can provide.