| | Published March 26th, 2014
| LYNN'S TOP FIVE: Taxes 2014 - Plan now for confidence later!
| | By Lynn Ballou |  | | Lynn Ballou is a CERTIFIED FINANCIAL PLANNER(tm) professional and co-owner of Ballou Plum Wealth Advisors, LLC, a Registered Investment Advisory (RIA) firm in Lafayette. Lynn is also a Registered Principal and Branch Manager with LPL Financial (LPL). The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Financial Planning offered through Ballou Plum Wealth Advisors, A Registered Investment Advisor and a separate entity. Securities offered through LPL Financial, member FINRA/SIPC. |
A rainy weekend - perfect time to get those taxes done, right? Wait - not so fast! As I'm writing this the IRS is just now finishing the instructions for a couple of new forms. So the tax software companies are just now updating and testing their software. They tell me hopefully this coming weekend (March 8) I'll be able to file my return. Yup, they are still due April 15! Makes you want to hug your tax pro, right?
So by now, even though all the forms are ready and hopefully your last corrected 1099 is in your hands, this will still be the year that will test your patience - until you get a peak at your return and then it will be the year that you realize tax planning for 2014 needs to start right now! Here are some of the bigger tax surprises that I think will be in store for you and what you need to do now so that next year will be "Ho hum," and not "Oh no!"
1) Cap Gains Pass Throughs: They say that "making money on your money" is what it's all about, right? Well congrats, because many of your investments were busy this past year doing just that. And with very few if any losses left on the books to offset gains, some of your holdings are passing your share of the gains through to you as we haven't seen the likes of in almost seven years. If these investments are in after tax accounts, be prepared to come up with the money to pay the taxes on this gain for 2013 and then include this in your planning for 2014 so you aren't unprepared at tax time next year. I think a lot of Americans will be pulling money out of their investments to pay this year's taxes, which of course could lead to more gains taken - sigh.
2) The Pease Limitations: One of the least enjoyable and least discussed experiences you may encounter is the return to phase outs of certain itemized deductions. Called the Pease limits after the Congressman who wrote the bill (Ohio, if you want to send him any love notes), these were suspended during the fallout from the global economic crisis. I guess Congress has bought in to the notion that the economy is better, because these limits are back! This will affect those of you with combined married filing jointly income of $305,050 or singles with $254,200. This complex law basically results in you losing as much as 3 percent of certain itemized deductions once you hit these income thresholds. Learn the specifics and how it might affect you when you are working on tax planning for this year.
3) The 0.09 percent solution: According to the IRS website, www.irs.gov, this new additional Medicare Tax, which went into effect on Jan. 1, 2013 applies to an individual's wages and self-employment income that exceeds a threshold amount based on the individual's filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. Although an employer is responsible for withholding on this if you earn more than $200,000, what about if you are married and together you must pay but separately your employer wasn't required to withhold? Be aware of this iceberg: you might not have been on top of this for tax season 2013, but now you know and can be better prepared.
4) Yup, another add on Medicare Tax!: In our offices we call this the good news bad news tax because it only applies if you have substantial investment income of a certain type, but once you do - and many retirees and avid savers in our community fall into this group - there are taxes to pay. Taxpayers with income over $200,000 and married filers with income over $250,000 should check to see what their investment income is and how this tax might apply. This could be a bit of a stealth tax for you, as your investment income is probably rarely the same year to year. A large capital gain one year could put you in line for this tax that you would normally otherwise avoid.
5) Can I get a safe harbor? Well - maybe! With underpayment penalty tax rates higher than what you can earn in your savings account, it pays to pay attention to these rules. For some taxpayers, you can get by with paying in 90 percent of your 2013 taxes through withholding in 2014. For others, it's more complex. Check in with your tax pro or the IRS website to learn more. And really check into the rules for California - they are more complex, onerous and sticky than the IRS rules now. Go to www.ftb.ca.gov to learn more.
So in closing, it's a call to arms, basically, and by that I mean arm yourself and your tax pro now with information! And please note: this information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor. This is also a reminder that all the best tax planning now is certainly in your best interests, but you'll want to check in later in the year to be sure you nailed it. Or see what new fun Congress has cooked up for you! Otherwise you could be looking at another "Oh no" tax season next year instead of "Wow - got that covered!"
|
| | | | | | | | | | |
Lamorinda Weekly, Moraga CA