During tax time, CPAs are generally asked to speak or write on tax tips because taxes are on people’s minds. The difficulty is that last year is history and for the most part there is very little available to impact last year. To help everyone become ProActive for 2014, here are five tips to help reduce your taxes for 2014:
The Affordable Care Act, or “Obamacare,” increased the floor for medical expense deductions from 7.5 percent to 10 percent for all taxpayers under age 65. Therefore, if you’re eligible to have a health savings account, fund it to the maximum of $3,300 for self-only or $6,550 for family coverage. This is only available if you have a high deductible health plan.
For individuals making over $200,000 and married couples making over $250,000, there will be a 3.8 percent Medicare tax on investment income. Investment income is interest and dividend income and capital gains. Therefore, it may be beneficial to move part of your portfolio into tax exempt income, such as municipal bonds.
If you are self-employed and filing as a sole proprietor, you should discuss with your tax advisor whether your entity selection is still the most cost effective way of doing business. It may be time to become an S corporation. There are additional costs of becoming a corporation so this decision should be made after getting the pros and cons.
If you file itemized deductions, don’t overlook charitable work. There are items you may not have been aware of that qualify for the deduction. If you travel away from home while performing duties for a charity, your out-of-pocket expenses could qualify (round trip travel costs, taxi fares, hotel and meals). There are some caveats with this so check with your tax advisor. If you use your car while performing services for a charitable organization, you can deduct actual expenses or the current mileage rate ($0.14 per mile). You can also deduct the cost of a uniform you wear when volunteering.
The old standby is still very valid and worthwhile – fund your retirement account. Most employers make matching contributions based upon the amount of employee contributions. If you need the immediate tax deduction, fund your retirement account with pre-tax dollars. If you are looking long-term, fund a Roth account. A Roth account does not produce an immediate tax deduction, but the earnings will not be taxed when withdrawn.
Speaking of funding a retirement account, that is one of the things you can do after the close of a year. You can still fund a Traditional IRA account for 2013 – if you qualify – until April 15 for a tax deduction.
Also, I would like to emphasize the need for documentation when dealing with the IRS. The IRS does require taxpayers to keep documentation in order to take the legal deductions everyone is entitled to. The IRS will take electronic copies of receipts so scan your documentation and shred the paper!
ProActive Tax & Accounting, 303 SW 140th Terrace, Jonesville, Fla., can be contacted at 352-333-7880.