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Dear Clients and Friends:

As 2014 draws to a close, there is still time to reduce your 2014 tax bill and plan ahead for 2015. This letter highlights several potential tax-saving opportunities for you to consider. If you have any questions about your particular situation please give me a call.

As a general reminder there are several ways in which you can file an income tax return: married filing jointly, head of household, single, and married filing separately. A married couple, which now includes legally recognized same-sex marriages, may elect to file one return reporting their combined income computing the tax liability using the tax tables or rate schedules for “Married Persons Filing Jointly.” If a married couple files separate returns, under certain situations they can amend and file jointly, but they cannot amend a jointly filed return and file separately. A joint return may be filed even though one spouse has neither gross income nor deductions. If one spouse dies during the year, the surviving spouse may file a joint return for the year in which his or her spouse died. Certain married persons who do not elect to file a joint return may be entitled to use the lower head of household tax rates. Generally, in order to qualify as a head of household, you must not be a resident alien, you must satisfy certain marital status requirements, and you must maintain a household for a qualifying child or any other person who is you dependent, if you are entitled to a dependency deduction for the taxable year for such person.

Basic Numbers You Need to Know

Because many tax benefits are tied to or limited by adjusted gross income (AGI) – IRA deductions, education credits, child tax credit, dependent care expense credit, etc. – a key aspect of tax planning is to estimate both your 2014 and 2015 AGI. Also, when considering whether to accelerate or defer income or deductions, you should be aware of the impact this action may have on your AGI and your ability to maximize itemized deductions that are tied to AGI. Your 2013 tax return and your 2014 pay stubs and other income and deduction related materials are a good starting point for estimating your AGI.

Another important number is your “tax bracket,” i.e., the rate at which your last dollar of income is taxed. The tax rates for 2014 have not changed from 2013 and are 10%, 15%, 25%, 28%, 33%, 35% and finally, 39.6%. Although tax brackets are indexed for inflation, if your income increases faster than the inflation adjustment, you may be pushed into a higher bracket. If so, your potential benefit from any tax-saving opportunity is increased (as is the cost of overlooking that opportunity).

This is the link to the 2013 tax tables -  The 2014 tables should be published shortly. There is a quick method chart below for 2014.


Gift Giving.

The most commonly used method for tax-free giving is the annual gift tax exclusion, which, for 2014, allows a person to give up to $14,000 to each donee without reducing the giver’s estate and lifetime gift tax exclusion amount. A person is not limited as to the number of donees to whom he or she may make such gifts. The annual exclusion is applied on a per-donee basis. In addition, because spouses may combine their exemptions in a single gift from either spouse, married givers may double the amount of the exclusion to $28,000 per donee. A person may not carry over his or her annual gift tax exclusion amount to the next calendar year. Qualifying tuition payments and medical payments do not count against this limit.


IRA, Retirement Savings Rules for 2014

Tax-saving opportunities continue for retirement planning due to the availability of Roth IRAs, changes that make regular IRAs more attractive, and other retirement savings incentives.

Traditional IRAs: Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2014 is $5,500. For 2014, a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,500 for these individuals. Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited in amount depending on their AGI. For 2014, the AGI phase-out range for deductibility of IRA contributions is between $60,000 and $70,000 of modified AGI for single persons (including heads of households), and between $96,000 and $116,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.

In addition, an individual will not be considered an “active participant” in an employer plan simply because the individual's spouse is an active participant for part of a plan year. Thus, you may be able to take the full deduction for an IRA contribution regardless of whether your spouse is covered by a plan at work, subject to a phase-out if your joint modified AGI is $181,000 to $191,000 ($0 - $10,000 if married filing separately) for 2014. Above this range, no deduction is allowed.

Spousal IRA: If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $5,500 for 2014 plus age 50 catch-up contributions, or the total compensation of both spouses reduced by the other spouse's IRA contributions (traditional and Roth).

Roth IRA: This type of IRA permits nondeductible contributions of up to $5,500 for 2014. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 591/2. Distributions may be made earlier on account of the individual's disability or death. The maximum contribution is phased out in 2014 for persons with an AGI above certain amounts: $181,000 to $191,000 for married filing jointly, and $114,000 to $129,000 for single taxpayers (including heads of households); and between $0 and $10,000 for married filing separately who lived with the spouse during the year.

Roth IRA Conversion Rule: Funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax-sheltered annuity or §457 government plan may be rolled over into a Roth IRA. Such a rollover, however, is treated as a taxable event, and you will pay tax on the amount converted. No penalties will apply if all the requirements for such a transfer are satisfied.

If you already made a conversion earlier this year, you have the option of undoing the conversion. This is a useful strategy if the investments have gone down in value so that if you were to do the conversion now, your taxes would be lower. This is a complicated calculation and we should meet to determine what your best options are.

In addition, for 2014, if your §401(k) plan, §403(b) plan, or governmental §457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from such account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual.


401(k) Contribution: The §401(k) elective deferral limit is $17,500 for 2014. If your §401(k) plan has been amended to allow for catch-up contributions for 2014 and you will be 50 years old by December 31, 2014, you may contribute an additional $5,500 to your §401(k) account, for a total maximum contribution of $23,000 ($17,500 in regular contributions plus $5,500 in catch-up contributions).

SIMPLE Plan Contribution: The SIMPLE plan deferral limit is $12,000 for 2014. If your SIMPLE plan has been amended to allow for catch-up contributions for 2014 and you will be 50 years old by December 31, 2014, you may contribute an additional $2,500.

Catch-Up Contributions for Other Plans: If you will be 50 years old by December 31, 2014, you may contribute an additional $5,500 to your §403(b) plan, SEP or eligible §457 government plan.

Saver's Credit: A nonrefundable tax credit is available based on the qualified retirement savings contributions to an employer plan made by an eligible individual. For 2014, only taxpayers filing joint returns with AGI of $60,000 or less, head of household returns with AGI of $45,000 or less, or single returns (or separate returns filed by married taxpayers) with AGI of $30,000 or less, are eligible for the credit. The amount of the credit is equal to the applicable percentage (10% to 50%, based on filing status and AGI) of qualified retirement savings contributions up to $2,000.

Required Minimum Distributions: For 2014, taxpayers must take their required minimum distribution from IRAs or defined contribution plans (§401(k) plans, §403(a) and §403(b) annuity plans, and §457(b) plans that are maintained by a governmental employer) after attaining age 70½. The amount of the distribution is based on life expectancy tables. It is best to arrange to take RMDs well before the end of the year to avoid any potential problems. The penalty for a failure is severe: It is equal to 50% of the required amount (less any amount you have received). However, be aware of this special exception. If you are still working and not a 5%-or-more owner of the business you are employed by, you can postpone RMDs from the employer’s qualified plan until retirement. This rule does not apply to RMDs from IRAs.

Maximize Retirement Savings: In many cases, employers will require you to set your 2015 retirement contribution levels before January 2015. If you did not elect the maximum 401(k) contribution for 2014, you can increase your amount for the remainder of 2014 to lower your AGI in order to take advantage of some of the tax breaks described above. In addition, maximizing your contribution is generally a good tax-saving move.

Deduction Planning

Individual Deductions

Deduction timing is also an important element of year-end tax planning. Deduction planning is complex, however, due to factors such as AGI levels, AMT, and filing status. If you are a cash-method taxpayer, remember to keep the following in mind:

Deduction in Year Paid: An expense is only deductible in the year in which it is actually paid. Under this rule, if your tax rate is going to increase in 2015, it is a smart strategy to postpone deductions until 2015.

Payment by Check: Date checks before the end of the year and mail them before January 1, 2015.

 Promise to Pay: A promise to pay or providing a note does not permit you to deduct the expense. But you can take a deduction if you pay with money borrowed from a third party. Hence, if you pay by credit card in 2014, you can take the deduction even though you won't pay your credit card bill until 2015.

AGI Limits: For 2014, the overall limitation on itemized deductions (“Pease” limitation) applies for taxpayers whose AGI exceeds an “applicable amount.” For 2014, the applicable amount is $305,050 for a married couple filing a joint return or a surviving spouse, $279,650 for a head of household, $254,200 for an unmarried individual, and $152,525 for a married individual filing a separate return. In addition, certain deductions may be claimed only if they exceed a percentage of AGI: 10% for medical expenses (7.5% for certain older taxpayers), 2% for miscellaneous itemized deductions, and 10% for casualty losses.

Standard Deduction Planning: Deduction planning is also affected by the standard deduction. For 2014 returns, the standard deduction is $12,400 for married taxpayers filing jointly, $6,200 for single taxpayers, $9,100 for heads of households, and $6,200 for married taxpayers filing separately. As you can see from the numbers, for 2014, the standard deduction for married taxpayers is twice the amount as that for single taxpayers. If your itemized deductions are relatively constant and are close to the standard deduction amount, you will obtain little or no benefit from itemizing your deductions each year. But simply taking the standard deduction each year means you lose the benefit of your itemized deductions. To maximize the benefits of both the standard deduction and itemized deductions, consider adjusting the timing of your deductible expenses so that they are higher in one year and lower in the following year. You can do this by paying in 2014 deductible expenses, such as mortgage interest due in January 2015.

Medical Expenses: For 2014, medical expenses, including amounts paid as after tax health insurance premiums, are deductible only to the extent that they exceed 10% of AGI (7.5% for taxpayers age 65 or older).

State Taxes: If you anticipate a state income tax liability for 2014 and plan to make an estimated payment most likely due in January, consider making the payment before the end of 2014. However, too high a payment could lead towards being subject to the AMT.

Charitable Contributions: Consider making your charitable contributions at the end of the year. This will give you use of the money during the year and simultaneously permit you to claim a deduction for that year. You can use a credit card to charge donations in 2014 even though you will not pay the bill until 2015. A mere pledge to make a donation is not deductible, however, unless it is paid by the end of the year. Note, however, for claimed donations of cars, boats and airplanes of more than $500, the amount available as a deduction will significantly depend on what the charity does with the donated property, not just the fair market value of the donated property. If the organization sells the property without any significant intervening use or material improvement to the property, the amount of the charitable contribution deduction cannot exceed the gross proceeds received from the sale.

To avoid capital gains, you may want to consider giving appreciated property to charity. Furthermore, if you donate appreciated property held for more than one year, you can generally deduct an amount equal to the property’s current fair market value.

  Regarding charitable contributions please remember the following rules: (1) no deduction is allowed for charitable contributions of clothing and household items if such items are not in good used condition or better; (2) the IRS may deny a deduction for any item with minimal monetary value; and (3) the restrictions in (1) and (2) do not apply to the contribution of any single clothing or household item for which a deduction of $500 or more is claimed if the taxpayer includes a qualified appraisal with his or her return. Charitable contributions of money, regardless of the amount, will be denied a deduction, unless the donor maintains a cancelled check, bank record, or receipt from the donee organization showing the name of the donee organization, the date and amount of the contribution. If you donate $250 or more in any one day to any one organization you must have written acknowledgement from the organization and it must state whether or not any goods or services were received in exchange for the donation.  However, be aware that other limits may apply to charitable deductions.

A special provision gives taxpayers the ability to distribute tax-free to charity up to $100,000 from a traditional or Roth IRA maintained for an individual who has reached age 701/2.

Education and Child Tax Benefits

Child Tax Credit: A tax credit of $1,000 per qualifying child under the age of 17 is available on this year's return. In order to qualify for 2014, the taxpayer must be allowed a dependency deduction for the qualifying child. Another qualifying determination is that the qualifying child must be younger than you. The credit is phased out at a rate of $50 for each $1,000 (or fraction of $1,000) of modified AGI exceeding the following amounts: $110,000 for married filing jointly; $55,000 for married filing separately; and $75,000 for all other taxpayers. These amounts are not adjusted for inflation. A portion of the credit may be refundable. For 2014, the threshold earned income level to determine refundability is set by statute at $3,000 for tax years 2008 through 2018.

Credit for Adoption Expenses: For 2014, the adoption credit limitation is $13,190 of aggregate expenditures for each child, except that the credit for an adoption of a child with special needs is deemed to be $13,190 regardless of the amount of expenses. The credit ratably phases out for taxpayers whose income is between $197,880 and $237,880.

Education Credits: Back in 2009, significant changes were put in place for the Hope credit, including a name change to the American Opportunity Tax Credit. Due to legislation in early 2013, these changes continue through 2017. The maximum credit for 2014 is $2,500 (100% on the first $2,000, plus 25% of the next $2,000) for qualified tuition and fees paid on behalf of a student (i.e., the taxpayer, the taxpayer's spouse, or a dependent) who is enrolled on at least a half-time basis. The credit is available for the first four years of the student's post-secondary education. For 2014, the credit is phased out at modified AGI levels between $160,000 and $180,000 for joint filers, and between $80,000 and $90,000 for other taxpayers. Forty percent of the credit is refundable, which means that you can receive up to $1,000 even if you owe no taxes. The term “qualified tuition and related expenses” includes expenditures for “course materials” (books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance). One way to take advantage of the credit for 2014 is to prepay the spring 2015's tuition. In addition, if your child's books for the spring semester are known, those can be bought and the costs qualify for the credit.

The Lifetime Learning credit maximum in 2014 is $2,000 (20% of qualified tuition and fees up to $10,000). A student need not be enrolled on at least a half-time basis so long as he or she is taking post-secondary classes to acquire or improve job skills. As with the Hope (American Opportunity Tax Credit in 2014) credit, eligible students include the taxpayer, the taxpayer's spouse, or a dependent. For 2014, the Lifetime Learning credit are phased out at modified AGI levels between $108,000 and $128,000 for joint filers, and between $54,000 and $64,000 for single taxpayers.

Coverdell Education Savings Account: For 2014, the aggregate annual contribution limit to a Coverdell education savings account is $2,000 per designated beneficiary of the account. The limit is phased out for individual contributors with modified AGI between $95,000 and $110,000 and joint filers with modified AGI between $190,000 and $220,000. The contributions to the account are nondeductible but the earnings grow tax-free.

Student Loan Interest: You may be eligible for an above-the-line deduction for student loan interest paid on any “qualified education loan.” The maximum deduction is $2,500. The deduction for 2014 is phased out at a modified AGI level between $130,000 and $160,000 for joint filers, and between $65,000 and $80,000 for individual taxpayers.

Kiddie Tax: For 2014, the kiddie tax applies to: (1) children under 18; (2) 18-year old children who have unearned income in excess of the threshold amount, do not file a joint return and who have earned income, if any, that does not exceed one-half of the amount of the child's support; and (3) children between the ages of 19 and 23 and if, in addition to the above rules, they are full-time students. For 2014, the kiddie tax threshold amount is $2,000.

Energy Incentives

Residential Energy Efficient Property Credit: Until 2016, tax incentives are available to taxpayers who install certain energy efficient property, such as photovoltaic panels, solar water heating property, fuel cell property, small wind energy property and geothermal heat pumps. A credit is available for the expenditures incurred for such property up to a specific percentage, except that a cap applies for fuel cell property. The property purchased cannot be used to heat swimming pools or hot tubs. If you have made improvements to your home or plan to by the end of 2014, please contact me to discuss the amount of the credit you may qualify for.

The following rules apply for most capital assets in 2014:

• Capital gains on property held one year or less are taxed at an individual's ordinary income tax rate.

• Capital gains on property held for more than one year are taxed at a maximum rate of 20% (0% if an individual is in the 10% or 15% marginal tax bracket; 15% for individuals in the 25%, 28%, 33% and 35% brackets).

Continuing from enactment in 2013, a 3.8% tax is levied on certain unearned income. The tax is levied on the lesser of net investment income or the amount by which modified AGI exceeds certain dollar amounts ($250,000 for joint returns and $200,000 for individuals). Investment income is: (1) gross income from interest, dividends, annuities, royalties, and rents (other than from a trade or business); (2) other gross income from any business to which the tax applies; and (3) net gain attributable to property other than property attributable to an active trade or business. Investment income does not include distributions from a qualified retirement plan or amounts subject to self-employment tax. This rule applies mostly to passive businesses and the trading in financial instruments or commodities. With this additional tax, the maximum net capital gains rate is 23.8% in 2014. Because distributions from qualified retirement plans are not subject to the tax, taxpayers may want to invest in retirement accounts, if possible, rather than taxable accounts.

Timing of Sales: You may want to time the sale of assets so as to have offsetting capital losses and gains. Capital losses may be fully deducted against capital gains and also may offset up to $3,000 of ordinary income ($1,500 for married filing separately). In general, when you take losses, you must first match your long-term losses against your long-term gains, and short-term losses against short-term gains. If there are any remaining losses, you may use them to offset any remaining long-term or short-term gains, or up to $3,000 (or $1,500) of ordinary income. When and whether to recognize such losses should be analyzed in light of the possible future changes in the capital gains rates applicable to your specific investments.

Dividends: Qualifying dividends received in 2014 are subject to rates similar to the capital gains rates. Therefore, qualifying dividends are taxed at a maximum rate of 20% (23.8% if subject to the net investment tax). Qualifying dividends include dividends received from domestic and certain foreign corporations.

Selling Your (Underwater) Home: Qualified mortgage debt relief from your lender discharged in 2014 will not be considered income. Congress extended a previous tax benefit and made it retroactive so any debt discharged on or after January 1, 2014, will not be considered income and taxes will not be owed on the amount forgiven.

Other Tax Planning Opportunities

Social Security: Depending on the recipient's modified AGI and the amount of Social Security benefits, a percentage — up to 85% — of Social Security benefits may be taxed. To reduce that percentage, it may be beneficial to defer receipt of other retirement income (but do not defer any required minimum distributions to a subsequent year). Alternatively, it may be beneficial to accelerate income so as to reduce the percentage of your Social Security taxed in 2015 and later years.

Qualified Tuition Programs: §529 (MOST in Missouri and Quest in Kansas ) qualified tuition programs are a good deduction on your state returns and are available for parents and grandparents as well as others.

Home Equity Debt: In some cases, you may consolidate outstanding personal debts into a home equity debt. Interest on personal debts is not tax-deductible, but you can deduct mortgage interest paid on the first $100,000 of home equity debt in most states, no matter how the proceeds are used. Caveat: The debt must be secured by your home.

Estimated Tax Payments: You may be liable for an “estimated tax penalty” if you fail to pay enough tax through any combination of withholding or quarterly installments. But you can avoid the penalty by paying enough to satisfy a “safe harbor” of 90% of current tax liability or 100% of the previous year’s tax liability (110% if your AGI was above $150,000).

Retirement Savings: Increase deferrals to your 401(k) account to boost retirement savings. The maximum deferral for 2014 is $17,500 ($23,000 if age 50 or older).

Health Care Planning

Individual Mandate: Under the 2010 health care reform law, sometimes called Obamacare, beginning in 2014, there is an individual mandate requiring individuals and their dependents to have health insurance that is minimum essential coverage or pay a penalty unless they are exempt from the requirement. Many people already have qualifying coverage, which can be obtained through the individual market, an employer-provided plan or coverage, a government program such as Medicare or Medicaid, or an Exchange. For lower-income individuals who obtain health insurance in the individual market through an Exchange, a premium tax credit and cost-sharing reductions may be available to offset the costs.

Health Care Savings Accounts: For 2014, cafeteria plans can provide that employees may elect no more than $2,500 in salary reduction contributions to a health FSA.

SHOP Exchanges: Beginning in 2014, the Small Business Health Options Program begins to allow certain small businesses to obtain health insurance for their employees through an exchange. The program is designed for employers with 50 or fewer employees (100 or fewer, but states may limit the number to 50 for 2014 and 2015). Each state will offer its own SHOP marketplace. Self-employed persons with no employees cannot use the SHOP Exchange. A tax credit, discussed below, is available to some businesses that pay part of the premiums for health insurance obtained by their employees through a SHOP Exchange.

Self-Employed Health Insurance Premiums: Self-employed individuals are allowed to claim 100% of the amount paid during the taxable year for insurance that constitutes medical care for themselves, their spouses and dependents as an above-the-line deduction, without regard to the general 10% of AGI floor.

Credit for Employee Health Insurance Expenses of Small Employers: Eligible small employers are allowed a credit for certain expenditures to provide health insurance coverage for their employees. Generally, employers with 10 or fewer full-time equivalent employees (FTEs) and an average annual per-employee wage of $25,400 or less are eligible for the full credit. The credit amount begins to phase out for employers with either 11 FTEs or an average annual per-employee wage of more than $25,400. The credit is phased out completely for employers with 25 or more FTEs or an average annual per-employee wage of $50,800 or more. The credit amount is 50% of certain contributions made to purchase health insurance (35% for a tax-exempt eligible small employer). For 2014, the credit is only allowable if the health insurance is purchased through a SHOP Exchange and is only available for two consecutive taxable years.

Health Savings Accounts: A health savings account (HSA) is a trust or custodial account exclusively created for the benefit of the account holder and his or her spouse and dependents, and is subject to rules similar to those applicable to individual retirement arrangements (IRAs). Contributions to an HSA are deductible, within limits. For 2014, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,300; for an individual with family coverage under a high deductible health plan is $6,550. For 2014, a “high deductible health plan” is a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,350 for self-only coverage or $12,700 for family coverage.

Alternative Minimum Tax

For 2014, the alternative minimum tax exemption amounts are: (1) $82,100 for married individuals filing jointly and for surviving spouses; (2) $52,800 for unmarried individuals other than surviving spouses; and (3) $41,050 for married individuals filing a separate return. Also, for 2014, nonrefundable personal credits can offset an individual's regular and alternative minimum tax, and capital gains will be taxed at lower favorable rates for AMT.

If you have a stock holding due to the exercise of an incentive stock option during this year that is now below the value at the exercise date (underwater), consider selling the shares before the end of the year to avoid the AMT tax due on the original exercise of the option.

Some of the standard year-end planning ideas will not reduce tax liability if you are subject to the alternative minimum tax (AMT) because different rules apply.

Business Deductions

Equipment Purchases: If you are in business and purchase equipment, you may make a “Section 179 Election,” which allows you to expense (i.e., currently deduct) otherwise depreciable business property. For 2014, you may elect to expense up to $500,000  of equipment costs (with a phase-out for purchases in excess of $2,000,000) if the asset was placed in service during 2014.

In addition, careful timing of equipment purchases can result in favorable depreciation deductions in 2014. In general, under the “half-year convention,” you may deduct six months worth of depreciation for equipment that is placed in service on or before the last day of the tax year. (If more than 40% of the cost of all personal property placed in service occurs during the last quarter of the year, however, a “mid-quarter convention” applies, which lowers your depreciation deduction.) A popular strategy in recent years is to purchase a vehicle for business purposes that exceeds the depreciation limits set by statute (i.e., a vehicle rated over 6,000 pounds). Doing so would not subject the purchase to the statutory dollar limit, $3,160 for 2014; $3,460 in the case of vans and trucks. Therefore, the vehicle would qualify for the full equipment expensing dollar amount. However, for SUVs (rated between 6,000 and 14,000 pounds gross vehicle weight) the expensing amount is limited to $25,000.

Capitalization v. Expensing for Materials and Supplies and Repairs: Effective for taxable years beginning on or after January 1, 2014, the IRS finalized regulations that determine when taxpayers should capitalize or deduct as a current expense repairs on tangible property, plus the deductibility of materials and supplies. A deduction for materials and supplies is allowed under a de minimis rule that includes property that has an acquisition or production cost of $200 or less. Also, another de minimis safe harbor states that for repairs to be deductible, among other requirements, the unit of property must cost less than $5,000 per invoice or item substantiated by the invoice for taxpayers with applicable financial statements and $500 per invoice for taxpayers without applicable financial statements.

Home Office: When you qualify for home office deductions, you may deduct certain expenses incurred in connection with the business use. The IRS recently approved use of a simplified home office deduction, capped at $1,500. Expenses attributable to using the home office as a business office are deductible under §280A if the home office is used regularly and exclusively: (1) as a taxpayer's principal place of business for any trade or business; (2) as a place where patients, clients, or customers regularly meet or deal with the taxpayer in the normal course of business; or (3) in the case of a separate structure not attached to the residence, in connection with a trade or business.

Travel and Meals & Entertainment: A company may deduct 100% of business travel costs and 50% of entertainment and meal expenses. Note that a company can deduct 100% of the cost of a holiday party as long as the entire workforce is invited.

Business Credits

Small Employer Pension Plan Startup Cost Credit: For 2014, certain small business employers that did not have a pension plan for the preceding three years may claim a nonrefundable income tax credit for expenses of establishing and administering a new retirement plan for employees. The credit applies to 50% in qualified administrative and retirement-education expenses for each of the first three plan years. However, the maximum credit is $500 per year.

Employer-Provided Child Care Credit: For 2014, employers may claim a credit of up to $150,000 for supporting employee child care or child care resource and referral services. The credit is allowed for a percentage of “qualified child care expenditures” including for property to be used as part of a qualified child care facility, for operating costs of a qualified child care facility and for resource and referral expenditures.

Work Opportunity Credit: The work opportunity credit is an incentive provided to employers who hire individuals in groups whose members historically have had difficulty obtaining employment. This gives your business an expanded opportunity to employ new workers and be eligible for a tax credit against the wages paid. Credit determined based on first-year wages paid for employees hired on or before December 31, 2013. Therefore, for 2014, the credit will only apply to wages paid for workers hired before that date during their first 12-month period of employment. Certain long-term family assistant recipient wages are counted for a second year.

Please note that this letter is intended only as a general guideline. Your personal circumstances will likely require greater examination. If you have any questions, please do not hesitate to call. I would be happy to meet with you at your convenience to discuss the strategies outlined above.

Very truly yours,

Terri L. Winters, CPA

Copyright 2003 all rights reserved (816) 468-8000

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