Year-End Tax Planning for 2014

Sep 15, 2014

MoneyLife100 We are more than halfway through 2014. And before your thoughts begin to turn toward holiday shopping, consider year-end tax planning and preparation. With proper tax planning, you can maximize your potential tax savings and minimize your tax liability.

Good News vs. Bad News

The bad news is you should have started 2014 tax planning on Jan. 1. The good news is that it is not too late to take efficient tax-savings measures for 2014.

Tax planning requires looking at your estimated income, deductions, and tax liability. Year-end tax planning helps examine your current financial status and set goals to help you achieve your financial objectives. To help you prepare, the Pennsylvania Institute of Certified Public Accountants has put together a few tax planning tips.

Check Your Earnings and Withholdings

One of the first steps in yearly tax planning is to look at your current earned wages or other income and how much has been withheld for income taxes. Then, try to make a reasonable effort of estimating the earned income and withholdings for the remainder of the year. Add to this income your projection of other income (dividends, capital gains, etc.) for the entire year. Any approximation is better than doing nothing. At this point, you can see if you are likely to owe taxes for 2014 or get a refund. You may then need to consider adjusting your withholdings.

If you are due a bonus toward year-end, ask your employer to defer it until January. If allowed, this will give you more time in 2015 to do more effective tax planning.

Itemized Deductions

Do you itemize your deductions or take the standard deduction? How do you determine which to use? The standard deduction is determined annually and is a “no questions asked” allowance as a reduction of your income. For 2014 the amounts are as follows:

 Filing Status 2014 
 Single   $6,200
 Head of Household   $9,100
 Married Filing Jointly   $12,400
 Married Filing Separately   $6,200

Choosing to itemize deductions depends on how much you spent on certain items, such as the ones listed below. * Compare the above set of standard deductions to the itemized deductions below:
  • Medical expenses exceeding 10 percent of your adjusted gross income (AGI)
  • State taxes (income and real estate)
  • Interest on home mortgages
  • Interest on debt to purchase or carry investments (limited to the amount of your investment income)
  • Charitable contributions (cash and in-kind donations)
  • Certain employee and investment expenses (to the extent they exceed 2 percent of AGI)
*Note: This is not an exhaustive list of itemized deductions.

If the total amount of all applicable deductions is more than your standard deduction, it may be beneficial for you to itemize deductions. If it looks like you won’t have enough to itemize in 2014, you may want to defer as many of those expenses and pay them in 2015 so the next year’s comparison of deductions is more favorable.

Check Your Investments

Do you have any capital gains for this tax year? If you already have taxable gains from selling such investments as stock or real estate, see if you have some unrealized losses among other assets that you can sell before year-end to offset those gains. Although it’s not favorable to lose money on your investments, declaring capital losses can help offset capital gains and reduce your tax liability.

If you are thinking of selling stock, consider postponing the sale of any with a gain until January to avoid the tax in 2014. But first, make the right decision from an economic or investment standpoint. Don’t let the “tax” tail wag the “economic” dog. Make sure the decision benefits your overall financial objectives.

Retirement Plans

One of the best tax planning opportunities is to maximize your retirement contributions. Make elective deferrals to your 401(k) account in addition to what your employer contributes. You can reduce your income by up to $17,500 ($23,000 if you are at least 50) in some cases. Money you contribute to your 401(k) plan is excluded from your income, which helps lower your tax bill. This is a great long-term savings option.

If you work and are not covered by a retirement plan, you can make an IRA contribution in 2015 before you timely file your 2014 return. Those contributions are deductible in 2014. For example, you can make 2014 contributions any time from Jan. 1, 2014, to April 15, 2015.

Education Savings Opportunities

Education savings plans are a good long-term savings vehicle to provide for your children’s or grandchildren’s college expenses. While there are no current income tax deductions for contributions to these accounts (except for some possible state income tax deductions), this is a good option to put away money for college expenses. Income earned in these accounts is not taxed as long as the funds withdrawn go toward qualified education expenses.

Generous Giving

Gift giving is a tradition during holiday season, and your generosity may pay off at tax time. For 2014, you can give up to $14,000 to a person without incurring any federal gift tax liability. If you’re married, you and your spouse can give up to $28,000 per recipient. However, to qualify for the annual gift exclusion, you must give the funds directly to the individual or into a trust with certain requirements. You do not get an income tax deduction for gifts to relatives.

Spend Your FSA Money

A flexible spending account (FSA)—not to be confused with a health savings account or “HSA” is a savings account offered by an employer that helps you put away tax-free money for qualified medical expenses. The IRS changed the rules so employers can allow employees to carry over up to $500 in their account to the next year. Companies have the option to allow participants to roll over unused funds, but are not required to do so.

If you have an FSA that is still “use it or lose it,” make sure you use all of your funds by the end of the year. Spend down your FSA on qualified medical expenses to help maximize your tax savings. When you start your 2015 tax planning, evaluate the amount you spent in your FSA and adjust accordingly.

Talk with Your CPA

These are just a few of the many year-end planning tips that can help you reduce your tax bill. It is not too late to start planning and making adjustments to maximize your savings. Your local CPA can help you understand these tax-planning strategies and better prepare you to start your 2015 tax planning. Next year, start your planning early to further enhance your savings and reduce your tax liability. To find a CPA in Pennsylvania by location or area of expertise, visit

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.

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