Start Planning Now to Better Manage Your 2014 Taxes

April 29, 2014  | By Kevin Smith

Now that tax season is over and the damage is done, what can you do for 2014 to better manage your taxes? Here are some ideas that may apply to you, in no specific order. We recommend that you consult with a tax professional before making any changes because your specific situation will determine what applies. For the most well informed decisions, we encourage a collaboration of goal-based financial planning with investment and tax strategies.

• Put more into your 401(k) if you can. You can put up to $17,500 into your account before taxes in 2014. If you are over 50, you can save an additional $5,500. Do not plan on using the money you put into your 401(k) before age 59 ½ to avoid penalties and make sure you have ample cash flow and access to liquid funds before increasing your contributions. If you do not have access to a 401(k), you may be eligible for an IRA. If you are a small business owner without a 401(k), you may want to consider a SEP or SIMPLE IRA.
• File jointly as a same-sex married couple. In June 2013, the U.S. Supreme Court struck down the federal Defense of Marriage Act. Two months later, in August, the IRS and the U.S. Treasury Department issued a statement announcing that any same-sex couple that’s “legally married in jurisdictions that recognize their marriages” will be given tax treatment as a married couple.
• Maximize health savings accounts (HSAs) contributions. If you are comfortable with a high deductible health plan, you will benefit from lower premiums and tax deductible contributions to your HSA account up to $6,450 in 2014 for a family plan.
• Consider an Oil & Gas Partnership investment. Certain types of oil & gas drilling partnerships are eligible for deductions of 80-90% of your investment (each program is different), as well as a deduction for depletion allowance write offs that pass through to you over a period of years. There are significant risks associated with these programs, they are illiquid, subject to oil & gas price changes, eligibility is limited, and minimum investments are often $25k or more. Make sure you are very educated about these investments before you participate.
• Withhold the proper amount. If you receive bonuses or commission checks, you may want to adjust your withholdings during those pay periods to avoid sending too much to the IRS. Your payroll system probably assumes that your large bonus check represents the amount you receive every pay period, so the withholdings are inflated.
• Consider a 529 Plan If you are saving for your kids’ college expenses. If you use the funds for college, you will not pay taxes on the account. Keep in mind that if you take the funds out for non-college expense use, you will pay a penalty and taxes.
• Claim a Home Office Deduction if you work from home. Qualified freelancers, contractors and business owners can now claim a flat home office deduction of $5 per square foot, up to a maximum of 300 square feet. (Before 2013, you had to maintain actual records of the cost of maintaining that home office space.)
• Have you received Restricted Stock from a private company? Consider the 83(b) election. If you receive restricted stock at a low cost basis and you expect the value of the stock to appreciate considerably, you may want to elect 83(b) and pay income taxes on the value of the shares upon receipt, rather than pay income tax rates on the value of the shares when they vest – perhaps years later. It is important to be educated about the pros and cons of this decision before taking action.
• Save receipts for medical expenses and unreimbursed business expenses. You may be eligible for deductions.