Appropriate Checklists for Year- End Tax Planning - Part 2

Financial investments

Pay attention to the changes in the capital gains tax rates for individuals and try to sell only assets held for more than 12 months.

Consider selling stock if you have capital losses this year that you need to offset with capital gain income.

If you plan to sell some of your investments this year, consider selling the investments that produce the smallest gain.

Personal residence and other real estate

Make your early January mortgage payment (i.e., payment due no later than January 15 of next year) in December so that you can deduct the accrued interest for the current year that is paid in the current year.

If you want to sell your principal residence, make sure you qualify to exclude all or part of the capital gain from the sale from federal income tax. If you meet the requirements, you can exclude up to $250,000 ($500,000 for married couples filing jointly). Generally, you can exclude the gain only if you used the home as your principal residence for at least two out of the five years preceding the sale. In addition, you can generally use this exemption only once every two years. However, even if you don’t meet these tests, you may still be able to qualify for a reduced exclusion if you meet the relevant conditions.

Consider structuring the sale of investment property as an installment sale in order to defer gains to later years.

Maximize the tax benefits you derive from your second home by modifying your personal use of the property in accordance with applicable tax guidelines.

Retirement contributions

Make the maximum deductible contribution to your IRA. Try to avoid premature IRA payouts to avoid the 10 percent early withdrawal penalty (unless you meet an exception). Contribute the full amount to a spousal IRA, if possible. If you meet all of the requirements, you may be able to deduct annual contributions of $5,500 to your traditional IRA and $5,500 to your spouse’s IRA. You may be able to contribute and deduct more if you’re at least age 50.

Set up a retirement plan for yourself, if you are a self-employed taxpayer.

Set up an IRA for each of your children who have earned income.

Minimize the income tax on Social Security benefits by lowering your income below the applicable threshold.

Charitable donations

Make a charitable donation (cash or even old clothes) before the end of the year. Remember to keep all of your receipts from the recipient charity.

Use appreciated stock rather than cash when contributing to charities. This may help you avoid income tax on the built-in gain in the stock, while at the same time maximizing your charitable deduction.

Use a credit card to make contributions in order to ensure that they can be deducted in the current year.

Itemized miscellaneous and medical expenses

Take advantage of the adoption tax credit for any qualified adoption expenses you paid. In 2014, you may be able to claim up to $13,190 (up from $12,970 in 2013) per eligible child (including children with special needs) as a tax credit. The credit begins to phase out once your modified AGI exceeds $197,880 (up from $194,580 in 2013), and it’s completely eliminated when your modified AGI reaches $237,880 (up from $234,580 in 2013).

Maximize the use of itemized miscellaneous expenses and/or medical expenses by bunching such expenses in the same year, to the extent possible, in order to meet the threshold percentage of your AGI.

Make sure that you have applied for Social Security numbers for all new dependents. Otherwise, the dependency exemption on your income tax return may be disallowed.

Please call me to find out more information, Jennifer Williams, President J. Williams Personal Financial Planning: 413 S. Curry St, Tehachapi, California Office phone 661-822-7517 Ofice email: [email protected] Jennifer is a Registered Financial Consultant. She has over 20 years of experience in the industry.

Article is courtesy of Forefield.Securities offered through NPB Financial Group, LLC. A Registered Investment Advisor/Broker-Dealer Member FINRA, MSRB, and SIPC.