Last-Minute Congressional Action May Require Some Year-End Tax Moves

Article Highlights:

• Congress passes extender bill 
• IRA to Charity Transfers for Older Taxpayers 
• Bonus Depreciation for Businesses 
• Sales Tax Deduction 
• Above-the-Line Tuition Deduction 
• Home Energy Saving Improvements 

Recent legislation passed just before adjournment by Congress provides some last-minute opportunities for taxpayers. These include tax provisions that had expired in 2013 but because of this bill have been extended through 2014. However, to take advantage of these extended laws you must qualify for them based on actions taken earlier in the year or you will need to take action before the end of the year, which does not give you a lot of time. The following are five extender provisions for which there is enough time to take last-minute action that could produce substantial tax benefits for 2014.

• IRA to Charity Transfers for Older Taxpayers - This is the provision of the law that allows taxpayers who are age 70.5 and older during the tax year to have up to $100,000 of IRA funds transferred directly to a qualified charity. The distribution is non-taxable up to the $100,000 limit for each spouse and can be counted as the required minimum distribution for the year. No charitable deduction is allowed for the transfer, but since the distribution is non-taxable, it reduces the taxpayer’s AGI. Many tax benefits are phased out or totally eliminated when AGI-based thresholds are exceeded. Thus, a lower AGI may protect some or all of those benefits. Also keep in mind that Social Security income is tax-free for lower-income retirees but becomes taxable as income increases, and by having the IRA distribution be non-taxable, the tax on the Social Security income may be reduced or eliminated. However, to benefit from any of the foregoing, the transfer of the IRA funds to a qualifying charity must be completed by December 31. Please contact the office if you need assistance in planning or if you previously made a transfer and have additional questions. 
   
• Bonus Depreciation for Businesses - The extender bill also extended the 50 percent first-year bonus depreciation deduction for personal tangible equipment purchased during 2014. This allows businesses to write off 50 percent of the cost of new business assets purchased during the year. Although it is probably too late to acquire and place into service very large items, this extender also increased the first-year deprecation limit on cars from $3,160 to $11,160 ($3,460 to $11,460 for trucks and vans). These amounts must be factored by the percentage of business use, which must be more than 50 percent to qualify for the bonus depreciation. There is still time to purchase and place into service a business vehicle, should that be a prudent business acquisition. 
   
• Sales Tax Deduction - Another extended item is the sales tax deduction, in lieu of deducting state income tax for those who itemize their deductions. This is especially beneficial for taxpayers in states with no state income tax. It can also benefit those in states with state income tax where the sales tax for the year exceeds the state income tax they’ve paid. If you are contemplating purchasing a big-ticket item such as a new car, purchasing it before year’s end may be beneficial. 
   
• Above-the-Line Tuition Deductions - Among the extenders was the ability to deduct, above-the-line (without itemizing), tuition paid for higher education, subject to reductions for higher income taxpayers. The tuition that can be deducted is the tuition paid during 2014, including the tuition for an academic period beginning in the first three months of 2015. But to take the deduction the tuition must be paid before the close of the year. It is recommended that you contact this office prior to taking action since the deduction is limited to $2,000 or $4,000 depending on income, and it may be better to take an education credit if otherwise qualified to do so. 
   
• Home Energy Saving Improvements - Also extended was the provision to take a tax credit, up to a lifetime limit of $500, for making certain home improvements that conserve energy. Although it would be hard to get such an improvement initiated and completed before year’s end, if you have qualifying improvements in progress, you might be able to complete them by December 31. To qualify, the improvements must reasonably be expected to have a useful life of at least 5 years. Improvements that qualify include energy efficient exterior windows and skylights, exterior doors, certain metal roofs, certain asphalt roofing, heating systems, air conditioning systems and certain insulation materials or systems designed to reduce heat loss or gain. 

Please call this office if you have questions about how any of the above items might benefit you. 

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