Some very last-minute tax moves to consider

hurry-upThere’s not much time left to make tax-saving moves for 2014. Some ideas to consider:

  • Make your January mortgage payment before December 31 to squeeze an extra interest deduction into 2014.
  • Make tax-free gifts to use your annual gift tax exclusion for 2014. This year you can give up to $14,000 to as many individuals as you like without tax consequences. These gifts to individuals are not deductible by you; nor are they taxable to the recipients.
  • Sell appreciated stock to offset capital losses taken earlier in the year and vice versa. Any excess loss can offset up to $3,000 of ordinary income in 2014, and losses greater than that can be carried to future years.
  • Use your credit card to pay tax-deductible expenses by December 31 if you’re short of cash. You can deduct the expenses on your 2014 return even though you pay your credit card bill in 2015.
  • If you’re required to take a minimum distribution from your retirement plan, do so by December 31 or you face a 50% penalty. If you just turned 70½ this year, you could wait until April 1, 2015, to take a first distribution.
  • If a wedding or divorce is in your year-end plans, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes.
  • To discuss these or other tax-cutting moves you might want to consider, give us a call now before it’s too late to act.

Could you benefit from a cost segregation?

Almost any taxpayer who owns commercial real estate can reduce his or her current income tax bill by using cost segregation. Just how much you save in taxes will depend on several variables. The greater the cost of your property, the greater the potential for current tax savings.

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Any building that was constructed, purchased, or remodeled since 1987 may be eligible for cost segregation. Retroactive tax deductions are available on older buildings without the need to file amended tax returns.

To pass an IRS audit for these deductions, you will want to use a cost-segregation specialist. This will usually be a construction engineer who can perform a detailed engineering study of all the building components (walls, ceilings, floors, plumbing, electric, telecommunications, heating and cooling systems, etc.) and assign the appropriate value to each. Those elements that qualify for five, seven, or fifteen year write off will provide the property owner with greater depreciation deductions and hence lower taxes in the early years.

The downside may be the cost to do the study versus the accelerated cash flow and possible penalties from the IRS for those who use cost segregation too aggressively.

The main elements of a proper cost segregation study are:

  • Conducted by someone with valid credentials as to experience and expertise.
  • A detailed description of the proper methodology.
  • Complete and proper documentation.
  • A full listing of all property that qualifies for shorter write off periods.

A properly conducted cost segregation study can provide a property owner with cash today that he or she would not otherwise get for several years.

An initial consultation with a cost segregation specialist can help you determine if your property is a candidate for a full blown study.

Self-employment gives you some tax breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.untitled

  • Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
  • Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
  • Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.
  • Please give us a call to find out more about the tax breaks available to self-employed individuals.