Janell A. Israel & Associates
November 2014 Tax Newsletter
What's New in Taxes:
Consider Some Year-End Moves To Cut Your 2014 Taxes
The holiday season will soon be upon us. Before you settle in to enjoy family, friends, and good food, take a look at steps you can still take to minimize your 2014 tax liability. Here are some possibilities.
* Make your January mortgage payment before December 31 to squeeze an extra interest deduction into 2014.
* Make tax-free gifts to use your annual gift tax exclusion for 2014. This year you can give up to $14,000 to as many individuals as you like without tax consequences. These gifts to individuals are not deductible by you; nor are they taxable to the recipients.
* Review your investment portfolio to determine whether you'll want to sell some investments before year-end to offset gains or losses taken earlier in 2014.
* If a wedding or divorce is in your year-end plans, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes. Even though the tax law currently provides some relief from the marriage penalty, it does not completely eliminate it.
* Review the deductions you plan to take for 2014. If you're close to the cutoff point between itemizing or taking the standard deduction, consider the advantage of bunching your deductible expenses every other year. You can then alternate between itemizing one year and taking the standard deduction the next, saving tax dollars by doing so.
* If you are helping to support an elderly parent, your college-age child, or others, check the requirements that you must meet to take a dependency exemption for this year. You may need to make some year-end adjustments to qualify for taking the exemption.
To discuss these or other tax-cutting moves you might want to consider, give us a call now before it's too late to act.
Caregivers Could Qualify For Tax Breaks
When you're focused on the rewards and stresses of taking care of a parent or family member who can no longer manage on their own, it's likely you're not thinking of tax benefits. Yet you might qualify for breaks that can reduce your year-end bill.
Here are three benefits to keep in mind as you gather information for your 2014 federal income tax return.
* Dependency exemption. Did you provide over half the support for a loved one during 2014? If so, and that person's income is less than $3,950, you may be able to claim a dependency exemption. Remember that tax-exempt social security is not included when figuring your loved one's income.
Tip: This break is also available even if the dependent parent lived in a nursing home during the year.
For 2014, the amount you can claim for each dependent is $3,950. More than one family member can qualify as a dependent as long as the income and support tests are met.
* Medical expense deduction. When you itemize, you can claim expenses you paid for a dependent relative. If you provide over 50% of the support for your relative, the expenses may be deductible even when that person is not a dependent.
What happens if you can't meet the 50% threshold? When medical expenses are paid by multiple family members, you can choose who gets the deduction by completing a multiple support agreement (Form 2120).
* Dependent care credit. You may be eligible for the dependent care credit when you pay for home care or daycare for a physically or mentally disabled person who lives with you. You must have earned income to claim the credit, which can be as much as $1,050 in 2014.
Please give us a call if you would like details about tax benefits available to caregivers.
What's New in Finances:
Don't Forget Your 2014 Required Minimum Distribution
If you're over 70½ years old, you generally have to take a minimum distribution from your IRA by December 31 or face a substantial penalty.
How much do you have to take out of your retirement account? That depends on the balance in your account (or accounts) on December 31, 2013, and your age on your birthday in 2014. Your spouse's age can also affect how much you're required to withdraw in situations when your spouse is the sole beneficiary of the account and is more than ten years younger than you.
You can always withdraw more than the required amount. Just remember that each year's RMD stands on its own, and any excess you take this year has no effect on your 2015 RMD.
If you just turned 70½ this year, you can either take your first required minimum distribution by December 31, or you can wait as long as April 1, 2015, to take the first distribution. Keep in mind that if you wait, you'll have to take two distributions in 2015.
Unless you're still working, these RMD rules also apply to other retirement plans, such as 401(k)s. Note, however, that no distribution requirements apply to Roth IRAs.
Call now to make sure you're in compliance with the RMD rules.
Got Debt? To Build A Healthier Financial Future, Utilize Only Good Debt
You've got debt! The question is, do you have good debt or bad debt? Even more important, how do you tell the difference before you take on any more? Here are two questions to ask before incurring any debt.
1. What are the benefits of taking on this debt? Avoiding all debt seems like good advice. But good debt can enhance your financial situation. For instance, loans that fund a college or graduate degree may result in a higher salary. That's debt with a lasting, tangible benefit.
Likewise, a mortgage for a home or rental property can increase your wealth by providing the opportunity for growth of capital and income.
Good debt can also have secondary advantages, such as the potential for tax deductibility of interest on student loans and home mortgages.
Bad debt, on the other hand, generally strains your cash flow without providing an offsetting advantage.
2. Does the cost exceed the benefit? As a general rule, good debt provides a return that's greater than the total amount you'll end up paying. Caution: Remember that your total outlay will be the stated price plus finance charges.
For example, suppose you need to buy a car. A moderately priced vehicle financed with a short-term loan can still have value when the payments end. That falls within the definition of good debt. But with today's longer terms of five to eight years, your loan might outlast the car. High interest rates and the longer payback period on "stretch" loans can bump your total outlay into bad debt territory.
Credit card debt poses the same peril. Charges you intend to pay back in full at the end of the month may not be a problem. But a restaurant meal, a vacation, or a Christmas splurge can get very expensive once you include the interest charged when you carry a balance on your credit card.
Good debt or bad? Recognizing the difference can lead to better money management - something you need if you want to improve your financial situation.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad& Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted& Christensen, Janell Israel & Associates and NPC are separate and unrelated companies. NPC does not provide tax or legal advice.
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