Reduce Your 2014 Income Tax Liability…in 2015

Mcleod Tax & Consulting writes: With the end of 2014 comes the end of managing your 2014 tax situation. From the run-of-the-mill tax ideas such as timing deductions & income to the more interesting strategies such as restructuring or managing nexus, the prime time to work through your tax planning is during the year, preferably before year-end.

The good news is that there are still some moves that can be made. The ones listed here can even be done without necessarily effecting future years’ tax situations. Let’s take a look at some low-hanging fruit.

1. Health Savings Account contributions. If your health insurance plan fits the requirements, you’re eligible to make a maximum 2014 contribution per individual of $3,300 or per family of $6,550. The tax-deductible contribution for 2014 can be made all the way up until April 15, 2015. The tax and non-tax benefits of this not-to-miss gem are too numerous to list here. See a previous post here.
2. Retirement plans for the self-employed. A traditional IRA or SEP IRA can be setup and funded by April 15, 2015 to receive a 2014 deduction.
3. Retirement plan contributions for employers. Although most types of plans will require establishment before December 31, 2014, most allow for the tax-deductible employer contribution by the extended filing date of the 2014 business tax return (typically September 15, 2015). These include SEP IRAs, SIMPLE IRAs, 401(k), and defined benefit plans. You must extend your tax return to receive the extension of time to make the contribution.
4. Fully expense fixed asset purchases. If your business and purchases meet the requirements, varying degrees of initial year expensing (versus multi-year depreciation) are available under IRC Sections 179 and 168(k).
5. Tax credits. So much sweeter than mere deductions that reduce taxable income, credits directly offset the liability itself. Many credits require advance approval and calculations. However, there are some requiring no upfront work and who’s relatively easy calculations can be performed in conjunction with preparing your tax return. Consider individual income tax credits related to dependents, non-gas vehicles, and education. You know that pesky individual income tax organizer your CPA gives you every year? Among other things, it goes a long way to identify potential tax credits. Note: AMT can diminish or even negate the ability to claim certain credits.

Chat with your tax advisor to see if any of these strategies make sense for you. Just because you can implement one or more of these ideas, doesn’t mean doing so will be in the best interests of your short and long-term tax, business, and financial goals.