More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
- Taxation of Real Estate Real estate may be used to shelter income and may offer certain tax benefits. However, the type of real estate investment may result in different tax treatment. Learn how to use these investments to help your clients.
I assume many of your clients took advantage of forced time indoors from record snowfalls this winter to get an early start on their taxes. Surely, I’m not the only one who delights in organizing my tax information and paperwork at the start of the New Year?
For those clients who have yet to scan their W-2s and 1099s, here are a few tips that will make the road to April 15 less painful and will potentially save them money.
1. Tax Loss Harvesting
Last December, I wrote a blog post for ThinkAdvisor focusing on tax loss harvesting trades. For those who need a quick recap: loss harvesting occurs when investors sell securities that have experienced a loss to offset other gains in their portfolio. After losses are netted against gains, the IRS limits the losses that can be set against ordinary income to $3,000 a year. Fortunately, investors can store these losses for future tax years. Of course the onus is on the taxpayer (or their advisor) to remember previous losses and document them appropriately for current and future tax years.
2. Moving Deduction
Unemployment rates have fallen since the worst days of the Great Recession, but generous benefits and relocation packages have yet to return to their prerecession glory days. This means that while workers have had to widen their employment radius, they are not always being compensated for their willingness to move. Fortunately, workers can recoup some of their losses by claiming unreimbursed job-search and moving-related expenses should their new place of employment be 50 miles or more from their old home.
3. Unreimbursed Employer Expenses
Another unfortunate legacy of the Great Recession: employees not always being reimbursed for costs associated with doing business. For business-related costs, you can deduct up to 2% of your adjusted gross income. A more comprehensive list of the deductible expenses can be found on the IRS website, including such items as: loans made to employers, education costs, uniforms and costs related to maintaining a home office.
4. Noncash Charitable Contributions
Did you go on a major cleaning spree in 2013? (Perhaps due to relocating for work?) Hopefully you remembered to collect a receipt for high-value items you donated to Goodwill or elsewhere. For items donated whose fair market value exceeds $250, you must be able to provide written acknowledgement from the charity that acknowledges your gift. Noncash contributions that exceed $5,000 must have a written appraisal of the item’s fair market value. Don’t let your eagerness to eliminate clutter cost you money by not documenting contributions properly!
5. Contribute to Retirement Plans
Finally, perhaps the most overlooked opportunity for tax savings: making contributions to retirement accounts. If you come to the end of your 1040 and find that you still owe taxes, make sure you’ve maxed out (or at least contributed) to your employer-sponsored retirement plan and/or IRAs. Thankfully you have until April 15 to make contributions for the previous year. While you’re at it, you may also want to get ahead of the ball and handle your 2014 contributions now. It may sting a bit to set aside a chunk of money in a restricted fund now, but you will be thankful the funds are there for you when you retire!
While the above tips can be applied to most tax situations, it is always best to check with the IRS website or your accountant to make sure that these tips are the best course of action for you. Best of luck to you and Happy Tax Day!
For more tax planning advice check out ThinkAdvisor’s 21 Days of Tax Planning Advice for 2014 home page.
View our March 2014 tax planning calendar for upcoming additional tax stories.