Friday, October 17, 2014

How to Max Out On Itemized Income Tax Deductions in 2014

Ken Berry for CPA Practice Advisor writes: In the usual case, the tried-and-true tax strategy at the end of the year is to pull deductions into the current year and push income into the following year. And, for the most part, it still makes sense. But now there’s a few extra tax wrinkles to contend with.
Case in point: Itemized deductions claimed by high-income taxpayers may be reduced by the so-called “Pease rule.” This special tax law provision, which was gradually phased out prior to 2010, was revived in 2013 and will continue to be a thorn in the side of some clients.
Let’s start with this basic premise. Normally, you can use the full amount of your itemized deductions to offset the taxable income on your tax return, thereby lowering your overall tax liability. However, under the Pease rule (named after the Ohio Congressman who sponsored the legislative provision on its initial go-round), certain itemized deductions are reduced by 3% of the amount above an annual threshold. For 2014, the threshold is $254,200 of AGI for single filers and $305,050 for joint filers.
Suppose a joint filer in 2014 has an excess AGI of $200,000 with $50,000 of itemized deductions that are covered by the Pease rule. The couple’s itemized deductions are thus reduced by $6,000 (3% of the $200,000 excess AGI), so they can deduct only $44,000, instead of $50,000. Note that the 80% limit comes into play for only the wealthiest of taxpayers. [snip]  The article continues @ CPA Practice Advisor, click here to continue reading....