Personal Tax and Financial Planning 2014 – 2015: What You Can Do Now to Save Money Now
If you are like most people, you experience an end-of-year rush that leaves you feeling exhausted and frustrated. Tax and financial planning is no different – the change in the calendar and the coming tax season after the New Year loom, and you want to do all you can now to save money. Luckily, there are a few important moves you can squeeze in now to make things a little easier when 2015 tax season arrives.
Remember, as you make decisions, any planning and strategy you employ must apply to both 2014 and 2015. A multi-year outlook ensures anything you do to save taxes this year won’t cost you more in the coming year. Also, be aware of the Alternative Minimum Tax. What works now could increase tax problems in the future. People who have many dependents, deduct state and local tax, exercise incentive stock options, or enjoy large capital gains should expect to pay this alternative tax.
Income and Deductions
Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income. These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income is also desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange.
The holidays are a time for giving and charitable contributions are no exception. Many people feel generous this time of year, and tax-wise it can pay off. Keep in mind donations charged on a credit card are deductible in the year charged, not when you make your payment. This means you can squeeze in a few donations before the end of this year and not need to make the payment until your bill arrives in January. You can give generously without leaving yourself short on funds for the holiday season.
Make Changes to Your IRA Funds
Converting traditional IRA funds to a Roth IRA can save you money over the long-term if your tax rate this year is lower than it will be in the future. Wiggle room in your current bracket also allows you to absorb a small Roth IRA conversation without forcing you into a higher tax bracket this year.
Also, don’t forget to make a tax deductible contribution to your traditional IRA or 401(k) retirement account if you are eligible.
Update Estate Planning
Recent changes concerning federal and state estate tax could mean it’s time to take a look at your current estate plan, if any, or finally implement an estate plan for the first time. In addition to changes in the law, changes in your personal life might be cause for a review of your estate plan that could lead to saving you money and improving your family’s situation in the future.
Making gifts sheltered by the annual gift tax exclusion before December 31st can save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The gifts also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
Taking action now can reduce your tax liability this year and next. Unfortunately, many people get caught up in the hustle and bustle of the holiday season and miss out on this last minute opportunity to save money. Waiting reduces your options and could be a big financial mistake. To make the most of your circumstances and take advantage of end of year savings, contact a financial planning and tax expert for more information. Feel free to call us to discuss your situation.
Estate planners are often asked whether trusts are only for the wealthy. Though it is not necessary for some people of modest means to establish a trust, it can be a useful estate planning tool, even if you are not rich.
Trusts establish a legal relationship whereby property is held by one party for the benefit of another. Trusts offer peace of mind that your assets will be dispersed according to your wishes once you are gone. Like a will, trusts can be used for any type of property and allow flexibility in the distribution of this property.
When you create a trust, you transfer ownership of some or all of your property to the trustee, who holds that property for the trust’s beneficiaries. For instance, if you want to place real estate in a trust, you would have that property titled in the name of the trustee. Trustees can be family members, friends, a trust company, a law firm, or a specific attorney or advisor.
Who Needs a Trust?
Anyone can avoid court administered probate upon death with use of a trust, but you should carefully consider if the expense connected with forming a trust is worth the investment. You should consider a trust if you have:
• Privacy or probate concerns
• Substantial real estate assets
• Large life insurance policies
• Specific instructions for how your estate is to be distributed once you are gone
• Desire to minimize estate taxes
• Need to protect your estate from creditors or lawsuits
If your accounts are held in joint tenancy or you have named beneficiaries for specific accounts or property, a trust might not be necessary. These assets automatically become the property of the beneficiaries upon your death without probate. For instance, if you own a home jointly with your spouse and both of your names are on the deed, your spouse will automatically become the full owner once you are gone.
An attorney can help you determine if a trust is the best option for you and your family.
What are the Benefits of a Trust?
The primary benefit of using a trust is to provide direction for managing your assets if you become incapacitated and upon your death.
A trust offers a great deal of flexibility. It can be revocable, which means you can make changes to any part of it or terminate it until the moment you are no longer capable of making decisions or communicating.
A trust also ensures your beneficiaries avoid dealing with probate at your death, thus saving time and money. Probate is the court process by which your will is proved valid, and through which your estate is administered after your death.
Finally, trusts are private, so the value and contents of the trust do not become a matter of public record once you die.
Have questions about your personal need for a trust? Then just call us to discuss your situation.