Taylor Schulte | Finance
Your year-end financial planning is behind you. Fighting the crowds to get that last minute Christmas gift is a distant memory.
The holiday decorations are back in storage and the in-laws are back where they belong. Time to relax and start enjoying some of the beautiful San Diego weather, right? Right! Right after you prepare and plan for tax season.
The IRS tax deadline is rapidly approaching and 2014 has some important federal tax changes that will affect individual taxpayers this year.
To help summarize and simplify, here are five key changes that we think are most important:
1) Flexible Spending Accounts
The “use it or lose it” rule for health care FSAs is no more. Last year, the IRS announced that employers have the option to allow you to roll over any unused balance up to $500 from the previous year. Check with your benefits department for details on your specific plan.
2) New top tax rate
As you might remember, tax legislation added a new top tax rate of 39.6% in 2013. Some taxpayers will also pay a higher capital gains rate, see some of their itemized deductions and personal exemptions be phased out, and pay additional taxes to help fund the new health care law. It’s a little late too plan for last year but these tax rates will remain in force for 2014. Consult with a tax advisor and be sure you have a plan in place to take advantage of every opportunity to reduce your 2014 tax bill.
3) Charitable donations from IRAs
In 2013, IRA owners who reached the age of 701/2 by December 12, 2013 could make charitable donations of up to $100,000 out of their IRAs. The donations satisfied the IRA required minimum distributions for these individuals and helped them reduce their tax bill. If Congress fails to take action, this opportunity will not be available this year. Stay tuned.
4) Energy efficiency
If you made certain energy-saving improvements to your primary residence last year you could be eligible for a lifetime maximum tax credit of up to $500. Additional credits are available for solar energy solutions but the credit for plug-in electric vehicles has now expired.
5) Affordable Care Act
As a result of the passage of the Patient Protection and Affordable Care Act (aka “Obamacare”), a new tax of 3.8 percent on the “net investment income” of certain individuals, estates, and trusts went into effect on January 1, 2013. “Although it came into effect last year, the new tax is driving the majority of questions I have received so far this tax season,” said local CPA Conor Donnelley. “Not only is there more emphasis being placed on net investment income as a result of the new tax, it has an entirely new definition. Prior to Obamacare, investment income generally referred to portfolio income (i.e. interest, dividends, capital gains). The new definition includes rental income, royalty income, non-qualified annuities, and income from businesses owned by taxpayers which they do not manage.” In other words, any income you receive which is passive in nature will be subject to the new tax – 3.8 percent of net investment income for individuals with gross incomes above $200,000 ($250,000 for joint filers).
These are just a few of the changes that will affect taxpayers in 2014. Consult with your advisor(s) to identify which changes will impact you and implement a plan that will put you in the best possible financial situation this year.
—Taylor Schulte is a CFP® professional for Beverly Hills Wealth Management in Downtown San Diego. Schulte specializes in providing independent, objective, financial advice to individuals, families, and businesses. He can be reached at 619-881-0388 or taylor.schulte@bhwm.com.
