by Esther Phahla, CPA, CTC, MST
With December 31st fast approaching, it’s time to review your year-end tax planning and avoid surprises come April 15, 2015. The 2013 tax year was a painful year for many high-net-worth taxpayers as they were subjected to higher tax rates, phase-out of personal exemptions and itemized deductions, the 3.8% surtax on the lesser of income over the thresholds or net investment income, and a 0.9% Medicare tax on wages over the thresholds. This resulted in taxpayers writing some large checks to the tax man in April 2014.
What can you do as a taxpayer to minimize the tax pain? Tax Planning
1. Charitable planning – Making charitable donations (cash or non-cash) may help increase your tax strategy. If you have done some spring/summer cleaning, it might make sense to donate to a registered non-profit.
2. Roth IRA Conversion – Don’t forget about the Roth conversion, if it makes sense at this time.
3. Accelerating deductions – Taxpayers who expect to earn a lot of income this year might want to consider accelerating their deductions and deferring their income.
4. High medical expenses – Consider the impact of medical expenses and how much that deduction will be.
5. Business Equipment – If you are a business owner rather than deferring spending on necessary equipment, you might want to purchase before year-end.
6. Capital losses – If you have capital losses, you might want to sell appreciated stock to offset gains.
7. Be aware of new penalties regarding the ObamaCare mandate and the tax penalty for not having health insurance going forward. Most taxpayers have to obtain health coverage with minimum essential coverage, and maintain it throughout the year.
Consult your Tax professional to see if any of this is applicable to you. It’s incredibly easy to push tax-related matters to the hectic overwhelming tax season. But whether you are self-employed or work for someone else, waiting for the beginning of the new year to prepare your tax documents may not be the best move. Start gathering any items necessary for the preparation of your tax returns.
Esther Phahla is a Certified Public Accountant and Certified Tax Coach in Temecula. She also holds a Masters of Science in Taxation. She can be reached at (951) 514-2652 or visit www.estherphahlacpa.com
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