New Legislation Extends
Popular Tax Provisions
In one of its final actions, the 113th Congress passed the Tax Increase Prevention Act of 2014. This
legislation extends for one year a host of popular tax provisions (commonly referred to as “tax extenders”)
that had expired at the end of 2013. All of the following provisions were among those retroactively
extended, and are now effective through the end of 2014.
Deduction for qualified higher-education expenses
You may be entitled to a deduction if you paid qualified higher-education expenses during the year–this
includes tuition and fees (for yourself, your spouse, or a dependent) for enrollment in a degree or certificate
program at an accredited post-secondary educational institution. The deduction doesn’t include payments
for meals, lodging, insurance, transportation, or other living expenses. The maximum deduction is generally
$4,000. However, if your adjusted gross income (AGI) exceeds $65,000 ($130,000 if married filing jointly),
your maximum deduction is limited to $2,000; if your AGI is greater than $80,000 ($160,000 if married filing
jointly), you can’t claim the deduction at all.
Deduction for classroom expenses paid by educators
If you’re an educator, you may be able to claim up to $250 of unreimbursed qualified classroom expenses
you paid during the year as an “above-the line” deduction. Qualifying expenses can include the cost of
books, most supplies, computer equipment, and supplementary materials used in the classroom. Teachers,
instructors, counselors, principals, and aides for kindergarten through grade 12 are eligible, provided a
minimum number of hours are worked during the school year.
Deduction for state and local general sales tax
If you itemize deductions on Schedule A of IRS Form 1040, you can elect to deduct state and local general
sales taxes in lieu of the deduction for state and local income taxes. You can calculate the total amount of
state and local sales taxes paid by accumulating receipts showing general sales taxes paid, or you can use
IRS tables. If you use IRS tables to determine your deduction, in addition to the table amounts you can
deduct eligible general sales taxes paid on cars, boats, and other specified items.
Tax-free charitable donations from IRAs
If you’re age 70½ or older, you can make a qualified charitable distribution (QCD) of up to $100,000 from
your IRA and exclude the distribution from your gross income. The distribution must be made directly to a
qualified charity by December 31, 2014, and must be a distribution that would otherwise be taxable to you.
QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to
receive from your IRA, just as if you had received an actual distribution from the plan. You aren’t able to
claim a charitable deduction for the QCD on your federal income tax return.
Deduction for mortgage insurance premiums
Premiums paid or accrued for qualified mortgage insurance associated with the acquisition of your main or
second home may be treated as deductible qualified residence interest on Schedule A of IRS Form 1040.
The amount that would otherwise be allowed as a deduction is reduced if your AGI exceeds $100,000
($50,000 if married filing separately), and no deduction is allowed if your AGI exceeds $109,000 ($54,500 if
married filing separately).
You may be able to claim an additional first-year “bonus” depreciation deduction, equal to 50% of the
adjusted basis of qualified property placed in service during the year. The additional first-year depreciation
deduction is allowed for both regular tax and the alternative minimum tax. The basis of the property and the
regular depreciation allowances in the year the property is placed in service (and later years) are adjusted
Expanded IRC Section 179 expensing limits
Under IRC Section 179, if you’re a small-business owner you can generally elect to expense the cost of
qualifying property, rather than to recover such costs through depreciation deductions. The maximum
amount that can be expensed for 2014 now remains at $500,000 (the same limit that applied in 2013),
rather than dropping to $25,000 had the legislation not passed. The $500,000 limit is reduced by the
amount by which the cost of qualifying property placed in service during the taxable year exceeds
Exclusion of gain–qualified small-business stock
Generally, you’re able to exclude 50% of any capital gain from the sale or exchange of qualified
small-business stock provided that certain requirements, including a five-year holding period, are met.
However, the temporary increase of the exclusion percentage to 100% that applied in 2013 is now
extended to qualified small-business stock issued and acquired in 2014.
Other provisions extended
Other provisions extended by the legislation include:
• The ability to exclude from income the discharge of debt associated with a qualified principal residence
• Provisions related to employer-provided mass-transit benefits
• Special rules for qualified conservation contributions of capital gain real property
• Provisions relating to business tax credits, including the research credit and the work opportunity tax
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The
information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be
used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer
should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly
available information from sources believed to be reliable—we cannot assure the accuracy or completeness
of these materials. The information in these materials may change at any time and without notice.
Season’s Greetings to all!
With the end of the year quickly approaching, it is important for many people to focus on year-end tax planning. It may be possible to significantly impact your 2014 tax situation by taking certain actions before the end of the year.
When it comes to year-end tax planning, you need to have a good understanding of both your own financial situation and the tax rules that apply. For some, that’s going to be a little challenging this year because a host of popular tax provisions, commonly referred to as “tax extenders,” that expired at the end of 2013, but In one of its final actions, the 113th Congress passed the Tax Increase Prevention Act of 2014. This legislation retroactively extends these tax provisions, which are now effective through the end of 2014. If any of these provisions applies to you, it may be important to take action before the end of the year. These provisions are summarized below, but see attached PDF file for more specifics.
Other year-end tax considerations include:
Timing is everything
Consider any opportunities you have to defer income to 2015. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there’s a chance that you’ll be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.
Similarly, consider ways to accelerate deductions into 2014. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or, you might consider making next year’s charitable contribution this year instead.
Sometimes, however, it may make sense to take the opposite approach–accelerating income into 2014, and postponing deductible expenses to 2015. That might be the case, for example, if you can project that you’ll be in a higher tax bracket in 2015; paying taxes this year instead of next might be outweighed by the fact that the income would be taxed at a higher rate next year.
Make sure that you factor in the alternative minimum tax (AMT). If you’re subject to the AMT, traditional year-end maneuvers, like deferring income and accelerating deductions, can have a negative effect. That’s because the AMT–essentially a separate, parallel, income tax with its own rates and rules–effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2014, prepaying 2015 state and local taxes won’t help your 2014 tax situation, but could hurt your 2015 bottom line.
Make sure that you’re taking full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds on a deductible (if you qualify) or pretax basis, reducing your 2014 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) aren’t deductible or pretax, so there’s no tax benefit for 2014, but qualified Roth distributions are completely free from federal income tax, which makes these retirement savings vehicles appealing.
For 2014, you can contribute up to $17,500 to a 401(k) plan ($23,000 if you’re age 50 or older), and up to $5,500 to a traditional IRA or Roth IRA ($6,500 if you’re age 50 or older). The window to make 2014 contributions to an employer plan typically closes at the end of the year, while you generally have until the April 15, 2015, tax filing deadline to make 2014 IRA contributions.
When it comes to year-end tax planning, there’s always a lot to think about. A tax professional can help you evaluate your situation, keep you apprised of any legislative changes, and determine whether any year-end moves make sense for you.
I hope you find this information to be helpful. Feel free to forward to anyone who may benefit. Please contact me with any questions, or if you would like to discuss/would like assistance with any personal financial planning topics such as cash flow/budgeting, health care, taxes, insurance, investing, college/retirement planning, estate planning.
Note that planning tips and other info. are now posted on my website, https://truenorthfinancialplanning.com/, under Resources/Blog. Feel free check it out.
I hope everyone has a happy and healthy holiday season.
Thomas C. Dettre, CPA, MBA
President and Founder
True North Financial Planning, LLC
This information does not provide investment, legal, or tax advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.