Many tax savings breaks expired at the end of 2013. An entire year has
gone by with no renewal. Is there still time for the change?
Throughout 2014 there was speculation the tax breaks would be extended.
Opinions of all types were posted on the Internet and discussed at tax
planning sessions and presentations in board rooms and at seminars.
It is possible for the laws to still be extended in early January to apply
to 2014, but as each day goes by, the chances diminish.
Proceeding under the assumption the current law is here to stay for another
year or so, make sure in your tax planning that you focus on areas you
can have some control over.
The net investment tax (NIT) of 3.8% has impacted many taxpayers. Now that
the IRS has issued more guidance for this tax, we can focus on alternatives
to reducing the tax. State taxes can be allocated against investment income
to reduce the amount of net income subject to the NIT. If investment income
is earned consistently among tax years, the tax will be fairly equal.
Should you have a year with a large capital gain, dividend or other passive
income, consider accelerating the state income tax payment into the same
tax year instead of paying with the return after year-end.
Review your portfolio with your financial advisor to see if municipal interest
income will produce a greater cash yield due to the additional NIT of
3.8%. In some instances, investing in other state municipalities may generate
a greater overall tax savings, even if you do have to pay California tax on it.
Make a plan for your charitable giving at the beginning of the year and
implement it throughout the year. Make sure the donations are properly
documented by you, as well as the recipient charitable organizations.
Mileage and other out-of-pocket costs incurred on behalf of charitable
activities may be deductible. Keep a log of your mileage as well as incidental
expenses you incurred during your volunteer time.
Consider reducing your estate tax by gifting to family members or with
charitable planned giving. The 2015 annual gift exclusion is $14,000 per
donee. The Estate and Gift Tax Exclusion has increased to $5,430,000 per
decedent for 2015.
For additional financial health information attend Torrance Memorial's
Financial Planning Workshops.
Scott J. Donnelly is a CPA in Torrance, CA.
www.pdmcpas.com. (310) 802-7832