Time’s A Wastin’
The clock is about to run out – but there may be just enough time remaining to enable you to save a few shekels from the grasp of Uncle Sam. A few last minute reminders:
- Check your portfolio and consider taking those unrealized losses now. And even if you like that stock or mutual fund, you can buy it back after 31 days elapse, thus having your cake and eating it too.
- If you’re thinking about favoring a particular charity with your largesse, do it now, rather than waiting for next year to roll around. That donation in 2014 could save you as much as 40% or more on your tax bill.
- So you think you’re underpaid with respect to this year’s income tax liability, and wonder how to escape the grab of the penalty for underpayment of estimated taxes. That may not be a problem at all – just tell your employer to withhold a little more from your last pay check this year. Remember that income tax withheld is treated, for this purpose, as having been removed from your pocket evenly across the entire year, even though the reality is that a large chunk was only removed in the waning days. And if your employer tells you “no way,” or if the incremental withholding from this source won’t cover your nut, consider having your IRA fund the difference. When you instruct that IRA custodian to make a distribution to you, he will insist on withholding 20% of any such distribution for Federal taxes. Then, in early 2015 (in any case, no more than 60 days from the distribution date), when you roll back the distribution, you can do so in full, thus avoiding any income tax bite for 2014, while likely solving your potential 2014 underpayment penalty problem!
- Buy now, pay later – like that car you’ve been eyeing, perhaps, which will give rise to a big sales tax deduction in 2014.
- And don’t forget to take any “required minimum distribution” from your IRA or 401(k) plan which your circumstances may require – if you’re age 70-1/2 or more. Failure to do so can result in a penalty of 50% of the required amount which is not withdrawn in the calendar year. Having said that, remember that if you hit 70-1/2 in 2014, you do have the right to wait on taking that first year’s RMD until as late as April 1 of the following year, if you don’t want to exacerbate what may be shaping up as a big tax liability in 2014.
- Also, don’t forget your estate planning gifting strategy – you can give up to $14,000 for 2014 to as many folks as you desire (typically, kids and grandkids) without triggering any gift tax.
And a Happy New Year to all!
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.