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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
Basic Numbers You Need to Know
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.
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 - http://www.irs.gov/pub/irs-pdf/i1040tt.pdf.
The 2014 tables should be published shortly. There is a
quick method chart below for 2014.
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.
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.
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.
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).
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.
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
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).
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.
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
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.
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 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:
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.
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.
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.
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
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).
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
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
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.
and Child Tax Benefits
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.
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.
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.
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
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.
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 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.
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.
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
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
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.
Tax Planning Opportunities
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.
§529 (MOST in
and Quest in
) qualified tuition programs are a good deduction on your state
returns and are available for parents and grandparents as well
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
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).
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.
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.
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.
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.
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
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.
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
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.
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
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.
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.
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
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.
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
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twinterscpa.com (816) 468-8000