Dec 10

2014 Year-End Tax Planning Basics

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2014 Year-End Tax Planning Basics

PDF Version Click Here ->Tax Tips

 

December 10, 2014

AMT triggers

You’re more likely to be subject to the AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. Other common triggers include home equity loan interest when proceeds aren’t used to buy, build, or improve your home, and the exercise of incentive stock options.

Required minimum distributions

Once you reach age 70½, you’re generally required to start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules apply if you’re still working and participating in your employer’s retirement plan). You have to make the withdrawals by the date required–the end of the year for most individuals–or a 50% penalty tax applies.

2014 Year-End Tax Planning Basics

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,” expired at the end of 2013. And while it remains possible that Congress could retroactively extend some or all of the expired provisions, you can’t count on it. Despite this uncertainty, the window of opportunity for many tax-saving moves closes on December 31, so it’s important to evaluate your tax situation now, while there’s still time to affect your bottom line for the 2014 tax year.

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.

Factor in the AMT

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.

Additional considerations for higher-income individuals

Changes that first took effect in 2013 complicate planning opportunities for higher-income individuals. First, a higher 39.6% marginal tax rate applies if your taxable income exceeds $406,750 in 2014 ($457,600 if married filing jointly, $228,800 if married filing separately, $432,200 if head of household); prior to 2013, the highest marginal tax rate was 35%. If your taxable income places you in the top 39.6% tax bracket, a maximum 20% tax rate on long-term capital gains and qualifying dividends also generally applies (prior to 2013, the top rate that generally applied was 15%).

Second, if your adjusted gross income (AGI) is more than $254,200 ($305,050 if married filing jointly, $152,525 if married filing separately, $279,650 if head of household), your personal and dependency exemptions may be phased out for 2014, and your itemized deductions may be limited. If your AGI is above this threshold, be sure you understand the impact before accelerating or deferring deductible expenses.

Additionally, a 3.8% net investment income tax (unearned income Medicare contribution tax) may apply to some or all of your net investment income if your modified AGI exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

Note:  Individuals with wages that exceed $200,000 ($250,000 if married filing jointly or $125,000 if married filing separately) are also subject to an additional 0.9% Medicare (hospital insurance) payroll tax.

IRAs and retirement plans

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.

Roth conversions

Year-end is a good time to evaluate whether it makes sense to convert a tax-deferred savings vehicle like a traditional IRA or a 401(k) account to a Roth account. When you convert a traditional IRA to a Roth IRA, or a traditional 401(k) account to a Roth 401(k) account, the converted funds are generally subject to federal income tax in the year that you make the conversion (except to the extent that the funds represent nondeductible after-tax contributions). If a Roth conversion does make sense (whether a Roth conversion is right for you depends on many factors, including your current and projected future income tax rates), you’ll want to give some thought about the timing of the conversion. For example, if you believe that you’ll be in a better tax situation this year than next (e.g., you would pay tax on the converted funds at a lower rate this year), you might want to think about acting now rather than waiting.

If you convert a traditional IRA to a Roth IRA and it turns out to be the wrong decision (things don’t go the way you planned and you realize that you would have been better off waiting to convert), you can recharacterize (i.e., “undo”) the conversion. You’ll generally have until October 15, 2015, to recharacterize a 2014 Roth IRA conversion–effectively treating the conversion as if it never happened for federal income tax purposes. You can’t undo an in-plan Roth 401(k) conversion, however.

“Tax extenders”

A number of popular tax breaks expired at the end of 2013. It’s possible that some or all of these provisions will be retroactively extended, but there’s no guarantee. You’ll want to consider carefully the potential effect of these provisions on your 2014 tax situation and stay alert for any late-breaking changes. Tax-extender provisions include:

  • The ability to make qualified charitable contributions (QCDs) of up to $100,000 from an IRA directly to a qualified charity if you were 70½ or older. Such distributions were excluded from income but counted toward satisfying any RMDs you would otherwise have to receive from your IRA.
  • Increased Internal Revenue Code (IRC) Section 179 expense limits and “bonus” depreciation provisions.
  • The above-the-line deduction for qualified higher-education expenses.
  • The above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
  • For those who itemize deductions, the ability to deduct state and local sales taxes in lieu of state and local income taxes.
  • The ability to deduct premiums paid for qualified mortgage insurance as deductible interest on IRS Form 1040, Schedule A.

Talk to a professional

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.

Refer a friend To find out more click here
IMPORTANT DISCLOSURESUnited Capital Financial Advisers, LLC (“United Capital”) provides financial guidance and makes recommendations based on the specific needs and circumstances of each client. For clients with managed accounts, United Capital has discretionary authority over investment decisions. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this newsletter is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. United Capital does not provide tax or legal advice.United Capital is independent from and not affiliated with Broadridge Investor Communication Solutions, Inc.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.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014.

Dec 09

Retirement Plan and IRA Figures At-a-Glance

Retirement Plan and IRA Figures At-a-Glance

 

2014 2015
Employee/individual contribution limits
Elective deferral limits
401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs1
(Includes Roth contributions)
Lesser of $17,500 or 100% of participant’s compensation Lesser of $18,000 or 100% of participant’s compensation
SIMPLE 401(k) plans and SIMPLE IRA plans1 Lesser of $12,000 or 100% of participant’s compensation Lesser of $12,500 or 100% of participant’s compensation
IRA contribution limits
Traditional IRAs Lesser of $5,500 or 100% of earned income Lesser of $5,500 or 100% of earned income
Roth IRAs Lesser of $5,500 or 100% of earned income Lesser of $5,500 or 100% of earned income
Additional “catch-up” limits (individuals age 50 or older)
401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs2 $5,500 $6,000
SIMPLE 401(k) plans and SIMPLE IRA plans $2,500 $3,000
IRAs (traditional and Roth) $1,000 $1,000
Employer contribution/benefit limits3
Defined benefit plan limits
Annual contribution limit per participant No predetermined limit. Contributions based on amount needed to fund promised benefits. No predetermined limit. Contributions based on amount needed to fund promised benefits.
Annual benefit limit per participant Lesser of $210,000 or 100% of average compensation for highest three consecutive years Lesser of $210,000 or 100% of average compensation for highest three consecutive years
Defined contribution plan limits (qualified plans, 403(b) plans, SEP plans, SIMPLE IRA plans)
Annual addition limit per participant (employer contributions; employee pretax, after-tax, and Roth contributions; and forfeitures; not applicable to SIMPLE IRA plans) Lesser of $52,000 or 100% (25% for SEP) of participant’s compensation Lesser of $53,000 or 100% (25% for SEP) of participant’s compensation
Maximum tax-deductible employer contribution (not applicable to 403(b) plans) 25% of total compensation of employees covered under the plan (20% if self employed) plus any employee pretax and Roth contributions; 100% for SIMPLE plans 25% of total compensation of employees covered under the plan (20% if self employed) plus any employee pretax and Roth contributions; 100% for SIMPLE plans
Compensation limits/thresholds
Retirement plan compensation limits
Maximum compensation per participant that can be used to calculate tax-deductible employer contribution (qualified plans and SEPs) $260,000 $265,000
Compensation threshold used to determine a highly-compensated employee $115,000 (when 2014 is the look-back year) $120,000 (when 2015 is the look-back year)
Compensation threshold used to determine a key employee in a top-heavy plan $1 for more-than-5% owners
$170,000 for officers
$150,000 for more-than-1% owners
$1 for more-than-5% owners
$170,000 for officers
$150,000 for more-than-1% owners
Compensation threshold used to determine a qualifying employee under a SIMPLE plan $5,000 $5,000
Compensation threshold used to determine a qualifying employee under a SEP plan $550 $600
Traditional deductible IRA compensation limits
Income phase-out range for determining deductibility of traditional IRA contributions for taxpayers:
1. Covered by an employer-sponsored plan and filing as:    
Single $60,000-$70,000 $61,000-$71,000
Married filing jointly $96,000-$116,000 $98,000-$118,000
Married filing separately $0-$10,000 $0-$10,000
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by an employer-sponsored retirement plan $181,000-$191,000 $183,000-$193,000
Roth IRA compensation limits
Income phase-out range for determining ability to fund a Roth IRA for taxpayers filing as:
Single $114,000-$129,000 $116,000-$131,000
Married filing jointly $181,000-$191,000 $183,000-$193,000
Married filing separately $0 – $10,000 $0 – $10,000

1 Must aggregate employee contributions to all 401(k), 403(b), SAR-SEP, and SIMPLE plans of all employers. 457(b) plan contributions are not aggregated. For SAR-SEPs, the percentage limit is 25% of compensation reduced by elective deferrals (effectively, a 20% maximum contribution).

2 Special catch-up limits may also apply to 403(b) and 457(b) plan participants. Age 50 $6,000 catch-up limit does not apply to nongovernmental 457(b) plans.

3 Note: For self-employed individuals, compensation generally means earned income. This means that, for qualified plans, deductible contributions for a self-employed individual are limited to 20% of net earnings from self-employment (net profits minus self-employment tax deduction), and special rules apply in calculating the annual additions limit.

 


IMPORTANT DISCLOSURESUnited Capital Financial Advisers, LLC (“United Capital”) provides financial guidance and makes recommendations based on the specific needs and circumstances of each client.  For clients with managed accounts, United Capital has discretionary authority over investment decisions.  Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this newsletter is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. United Capital does not provide tax or legal advice.    United Capital is independent from and not affiliated with Broadridge Investor Communication Solutions, Inc.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.

Nov 04

Social Security Decisions Infographic

 

Social Security Decisions Infographic

Follow me on Twitter: @pauljjarvis

You have probably heard that there are pros and cons to taking social security early, at full retirement age, or delaying but haven’t actually seen the difference.  I created this infographic to illustrate someone who has a full retirement age (FRA) of 66.  For additional illustrations you can check out this calculator on AARP’s website that can also run a few illustrations. For additional resources check out a few helpful links:

 

When Should You Collect Social Security: http://wp.me/p2E1Vi-4X

Social Security Administration website: http://www.ssa.gov/

AARP Calculator: http://goo.gl/z6fA2H

FPA: How the Social Security Claiming Decision Affects Portfolio Longevity:  http://goo.gl/MstpNG

 

 

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

Sep 03

FINANCIAL PLANNING OR FINANCIAL GUIDANCE: HOW DO THEY DIFFER?

 

FINANCIAL PLANNING OR FINANCIAL GUIDANCE: HOW DO THEY DIFFER?

Part of putting a financial plan in place means knowing what’s right for you – how much or how little planning you need, and how active you want to be in the planning process. While a CFP®  professional can help you create a plan and provide guidance, YOU ultimately have to be in charge of the decisions that impact your life and your financial situation. Taking control of those things you can control is an important first step.

 

One area that many people outside the investment industry struggle with is the jargon and terminology.  What’s the difference between planning and or guidance? There are advisers who are planners and planners who act as advisers. There are some who only provide planning for a fee, and some who do only the advisory work, leaving the planning piece for the investor to navigate.

 

As you decide what type of financial service will best meet your needs, there are a few things to understand about planning and guidance.

 

1.  Financial “Planning” is often a separately paid fee engagement that focuses on information gathering, understanding your goals and objectives, looking at the entire financial picture (not just investments, but insurance and long-term care, among other components), and then creating a plan that is customized for your situation. As part of this process, I believe the professional should go even deeper by looking at who you are as a person and why you care about what you do. This may lead to incorporating goals that are sometimes non-financial in nature.

 

2.  Financial “Guidance” is mostly focused on giving guidance and direction on which investments are best for your situation. There are two types of advice:Discretionary and non-discretionary. “Discretionary” means the adviser retains control, and while he or she may update the investor, the adviser makes the final investment decisions. “Non-discretionary” means the adviser offers the advice but the investor makes the final buy-and-sell decisions for their own portfolio. The advice most often focuses on risk tolerance and portfolio allocation, and may not take into account other aspects of the investor’s situation.

 

When both planning and guidance are combined, it is often called comprehensive wealth management. This is where the planning focus and discipline is brought together with the adviser’s investment acumen and expertise. Of course, understanding the investor, and listening to his or her needs and concerns, is a key element of the comprehensive approach.

 

So how do you decide which approach is right for you? Here are some questions you should ask yourself:

 

Are you clear on the “why?” behind the choices you have made to date – do you have a process for deciding which financial decisions will work best for you?

  • Are you saving enough to meet your goals such as retirement?
  • Should you contribute to a Roth IRA or a Traditional IRA?

 

Do you want to be actively involved in the investment process?

  • Do you like to “watch” the markets and direct investments?
  • Do you only want to know how to invest your money?

 

What services do you actually need? Investment management only? Planning only? Both, also known as comprehensive wealth management?

 

Is having a holistic view of your financial picture important?

 

If a holistic approach is indeed what you are looking for, a CFP® professional is uniquely qualified to help. They are trained comprehensively in six specialty areas to assist clients in pulling their whole financial lives together: retirement, estate planning, taxes, investments, budgeting and insurance. Use the “Find a CFP® Professional” tool to find a CFP® professional in your area.

Aug 25

Switching to the 24-Hour Workday: Financial Implications of Stay-at-Home Parenting

 

Switching to the 24-Hour Workday:  

Financial Implications of Stay-at-Home Parenting

 

Washington, D.C., August 25, 2014 – Choosing to transition from two incomes to stay-at-home parenting isn’t an easy decision, but is the right choice for many families. This decision should be made after careful consideration of the financial implications of leaving the workforce. While dropping expenses such as daycare, commuting and lunches helps, leaving a job means losing out on financial benefits that most parents don’t notice until they’ve already left their job.

 

Certified Financial Planner Board of Standards (CFP Board) Ambassador Paul Jarvis, CFP® shares ways parents can prepare for making the stay-at-home parenting decision.

 

Understanding the complete picture is critical when making big decisions such as stay-at-home parenting.  Make sure you evaluate both the personal costs as well as the financial costs before making the leap,” Jarvis says.

 

In the latest installment of “Let’s Talk Planning” blog (LetsMakeaPlan.org), CFP Board shares under-the-radar costs and benefits parents leaving the workforce may not be taking into account, to help them navigate this transition in a planned and financially responsible way:

 

  • Retirement contributions: Giving up employment means giving up the free, tax-deferred benefit of a retirement plan employer match.  It’s important that stay-at-home parents still fund their retirement via IRAs or with after-tax savings, but the amounts they can put aside are often less due to a tighter budget or IRS limitations.

 

  • Non-taxable or pretax tax benefits: Some employers reimburse employees for tuition expenses, and these reimbursements are not considered taxable income.  Similarly, workplace cafeteria plans allow for savings on certain expenses – such as eye care or dental – with pretax dollars. Leaving an employer means foregoing these benefits.
  • Social Security benefits:  Retirement benefits are calculated on the highest-paid 35 years of employment, and no credit is given to full-time parents. Time out of the workplace can mean receiving lower Social Security benefits. 

 

  • Insurance:  Leaving an employer may mean losing term life insurance benefits, health insurance benefits, and certain forms of disability insurance that are not available to those without workplace earnings.

 

  • Future employability:  A prolonged departure from the workplace makes rejoining the workforce at a later date harder, especially at an income or responsibility level comparable to that of a previous job. The amount of foregone future income and employment benefits can be considerable.

 

It is not a CFP® professional’s job to impose his or her opinions or choices on clients – they should do what’s best for their families, whether that’s two working parents or stay-at-home parenting. But talking with a CFP® professional will help families evaluate their goals, and get them to think about how the costs they may not be considering will affect their ability to reach those goals.

 

 

ABOUT CFP BOARD

The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.  CFP Board currently authorizes more than 70,000 individuals to use these marks in the U.S.

 

CONTACT: Dan Drummond, Director of External Relations P: 202-379-2252 M: 202-550-8259 E: ddrummond@cfpboard.org Twitter: @cfpboardmedia

 

 

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

 

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