2014 Year-End Tax Planning for Individuals

It’s hard to believe that we are getting towards the end of another year, but with the end of 2014 in sight, now is an excellent time to review your tax planning strategies and goals to help reduce your tax burden.

The 2013 tax season saw significant rate shifts for individuals. Thankfully, there have not been additional increases in 2014. With the year almost over, it is unlikely that we will see any major tax reform, but we are hopeful that it will at least happen on a small scale in the coming year.

Timing of Income and Deductions
A tried and true way of reducing your tax burden is through the timing of income and deductions. By deferring income and accelerating your deductions, you can defer and possibly reduce your tax. However, if you are subject to the alternative minimum tax (AMT), you will need to consider a different strategy other than the one mentioned above. Your timing strategy will actually be the opposite. Now that the AMT brackets and extensions are indexed for inflation, it does make planning a bit clearer. Prior to 2013, we had to wait for Congress to enact any adjustments to the AMT brackets and exemptions, which tended to make planning uncertain.

Utilization of Your Retirement Plans
Another strategy to consider is the utilization of your retirement plans to defer taxes to later years. By contributing the maximum amount annually to your retirement plans, you will be able to reduce your taxable income and defer taxes to later in life, when you will most likely be in a lower tax bracket.

Expiration of Tax Credits
There are a number of tax credits that expired at the end of 2013, and unless Congress extends them, they will not be available to individuals for the 2014 tax season. One expired provision we are hoping to see extended is the tax-free IRA distribution to a qualified charity. With this deduction, taxpayers over 70½ have been able to satisfy their required minimum distribution by making tax-free distributions directly to a charity—up to $100,000 per IRA owner, without adding to their income. Stay tuned for the final word on this item.

1031 Exchanges and Property Outside of California
Did you exercise a 1031 exchange or “like-kind” exchange to defer any gains on the sale of a property in California for another property outside the State of California? If so, you need to be aware of California’s new filing requirements. As of January 1, 2014, if the new property you are purchasing is outside the State of California, you will be required to file a California 1031 information return. This new form will be used by the California Franchise Tax Board to track the deferred gains. Typically, this form will have to be filed annually until the deferred gain is recognized. It is important to note that this is required even if you have no other filing requirement with the State of California.

Nontaxable IRA Rollovers in 2015
One thing to keep in mind for 2015 is the United States Tax Court’s recent ruling regarding nontaxable IRA rollovers. The one nontaxable rollover rule no longer applies to each IRA separately, rather it applies to all of a taxpayer’s IRAs. As of January 1, 2015, a taxpayer will only be able to make one nontaxable rollover contribution per year. Taxpayers may want to consider moving money between IRA’s by way of trustee to trustee transfers, thereby avoiding the one rollover per year rule.

This article encapsulates just a few of the possible strategies that are available to help you reduce your tax burden. As always, we are here to help you develop a plan that is most ideal for your situation, meeting your needs and goals.

By starting your planning now, we can work together to formulate the best strategy. Should you have any questions about how to begin your tax planning, please feel free to contact me at (805) 963-7811 or eboscacci@bpw.com. You can also visit our Web Tax Guide for additional tax planning information at https://www.bpw.com/resources-client-tools.aspx.