This year is closing out and so are your chances to plan for 2014 tax liabilities. This may be a good month because you probably are not going to be spending time on LSU or the Saints football fortunes. With a little help, you should come up with a better game plan than our esteemed coaches developed. I am borrowing for a November 8, 2014 Wall Street Journal article that focused on year-end tax planning.
Let’s start with your investment accounts. Study them for possible gains and losses. Be cognizant of distributions from mutual funds held in taxable accounts. You should be receiving year-end estimates of planned distributions that will allow you to plan around them. If you have gains, you can offset them with capital losses, so harvesting of your investment assets may make sense. If you miscalculate and end up with more losses than gains, the losses can be carried forward and used in future years. If your adjusted gross income exceeds $250,000 (married, filing jointly), you may be subject to the 3.8% surtax on net investment income. Appreciated assets can also come into play with charitable giving. Subject to limitations that your accountant can explain, a charitable gift of an appreciated asset can be more efficient than writing a check. If you give an asset with a market value of $5,000 that you paid $1,000 for years ago, your deduction will be $5,000 and you will avoid the capital gains tax on the asset’s growth. If you were to sell the stock and write a check to charity with the proceeds, you will generate $4,000 of capital gains, subject to a 25% tax. Instead of a $5,000 gift made tax-free, the sale example produces a tax of $1,000 and a net donation of $4,000.
Alternative minimum taxes will affect about 4 million taxpayers. This is a levy that eats away at valuable deductions and exemption. If you are anticipating a major capital gain or other bumps to your income, consult with your tax expert before the transaction is complete for possible ideas on deferring income. The deduction for medical expenses is more costly: medical expenses are deductible to the extent they exceed 10% of adjusted gross income; previously, the threshold was 7.5%. On the subject of health expenses, there is a tax this year on people who don’t have health insurance. To avoid the penalty, you have to have been covered by an approved policy for 9 months of 2014. The penalty is a flat amount or 1% of income, whichever is greater, subject to limits. There is some good news remaining to mention. You can make a tax-free transfer of up to $14,000 per recipient. If you have grandchildren, you can set up college education plans that allow tax-free growth for future needs. There is no deduction, but the donor retains control of the assets and there is no tax on distributions if used for the proper educational costs. These plans can also help remove assets for an estate plan. You will need to consult with the proper tax and legal advisors prior to a final decision.
As you have probably noticed, evil and evildoers remain in existence in our world. As you make your Christmas plans, realize that not much has changed. In the Old Testament and the New, you find examples of wrongdoing and misguided activities. You also have been given an antidote for the misery. A savior was born to give you a path out of the morass and into the light. We have the right and the need to celebrate and I hope and pray that you broadcast your faith and your hope. Barbara Brown Taylor wrote: “In this divine dance we are all dancing, God may lead, but it is entirely up to us whether we will follow. The only thing that is absolutely sure in this scenario is that we have a partner who is with us and for us and wants us to have life.” From John 10: “my sheep hear my voice and I know them, and they follow me; and I give them eternal life and they shall never perish, nor shall any man pluck them out of my hand.” Promises to live by.
Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed. This material is intended for informational purposes only and should not be construed or acted upon as individualized tax, legal or investment advice. FSC Securities Corp does not offer tax or legal advice. Securities, insurance and investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment advisor 3416 North Blvd, Alexandria, LA 71301, (318) 448-3201. The views expressed are not necessarily the opinion of FSC Securities Corporation.