Nth Degree End of 2014-15 Tax Year Newsletter

Written Nov 20, 2014 by Dan Nicholson

Firm Updates

We have moved offices!
We have moved out of Pioneer Square and are now across from Pacific Place at 1809 7th Avenue, Suite 303, Seattle WA 98101. We are excited about this move as it allows us to continue growing. Feel free to stop by any time, we love to show the new space off.

We have added new skills to the team
Jason Hedlund has joined the team as a Tax Director and Rachal Beckman as Office Manager. We are thrilled to expand the Company to include these valuable new employees.

Tax Associate, Chet Syverson, and Accounting Senior, Mandy Rubeor, both passed the CPA exam.

The Nicholson family also added a new member to their team, Noella Nicholson, born in January of this year.


Congressional Activity

Year-end planning is especially difficult this year because Congress has yet to act on a variety of tax items that expired at the end of 2013. Some may be retroactively reinstated and extended while others may not see light again.

For Individuals:

 •  The option to deduct state and local sales taxes instead of state and local income taxes;

 •  The above the line deduction for qualified higher education expenses;

 •  Tax-free IRA distributions for charitable purposes by those aged 70-1/2 and older;

 •  The exclusion of up to $2 million of mortgage debt forgiveness on a principal residence.

 •  Mortgage Forgiveness Debt Relief Act

For Businesses:

 •  50% bonus depreciation during the first year of service;

 •  The $500,000 annual expensing limitation on fixed assets (the Section 179 limit)

 •  The 15-year life for qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.

High Income Earners

As it applies to higher income earners, there are additional concerns when considering year-end plans. You have probably heard of the additional 3.8% tax on certain “unearned” income and the additional 0.9% Medicare tax on wages in excess of $200,000 ($250,000 for married couples). 

Employers may have additional year-end responsibilities; specifically,employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income.

Self-employed people must take this additional tax into account for estimated tax purposes.


Individual Tax Plan Suggestions

Consider, realizing losses on stock while substantially preserving your investment positions. You can buy back the same security and claim the loss so long as you wait 31 days. We would recommend consulting with your investment advisor if this is a strategy you wish to employ.

If possible, postpone income until 2015 by accelerating deductions into 2014. This may be done by requesting from your employer that any bonuses be deferred until 2015, for example. It may be possible to take additional deductions and credits that may be phased out due to higher income. Some of the credits and deductions we would want to consider include child tax credits, higher education tax credits, and deduction for student loan interest. If you are considering a significant reduction in income in 2015, accelerating deductions into 2014 may result in overall tax savings. Given the impact of the itemized deduction phase-outs, we would want to model the impact before making any such decisions.

You may consider converting your traditional IRA to a Roth IRA. One thing to note, by converting, you will be increasing your gross income for the year. Conversely, if you converted a traditional IRA to a Roth IRA but your Roth IRA has declined in value, we may consider recharacterizing that conversion by transferring the converted amounts (plus earnings less losses) from the Roth IRA to the traditional IRA. You can later convert back to a ROTH when doing so proves advantageous.

You may benefit from a bunching strategy – such as paying additional medical expenses and itemized deductions in one year when your income is lower to take advantage of the phase-out considerations. Another option may be to pre-pay state income taxes in 2014 for taxes owed in 2015. One thing to keep in mind is the impact of Alternative Minimum Tax (“AMT”) would have on such a strategy. That being said, we would want to consider the effect of any year-end planning moves on AMT for 2014. (Briefly, AMT eliminates many deductions when computing income from AMT purposes. Some of the deductions that are eliminated include: property, state income, and sales taxes, miscellaneous itemized deductions, personal exemptions, home mortgage interest used for certain purposes. Further, certain deductions, like medical expenses, are computed differently for AMT purposes than they are for regular tax purposes.)

If you suffered a casualty loss during 2014, it may make sense to consider settling your suit in a year when your income is lower to take advantage of a lower phaseout.

You may consider maxing out your 401(k) program at your place of employment if you haven’t already.

Tax Planning Meetings

Within this Newsletter we describe tips and suggestions that may be useful to the average client. As we all know, a “one-size fits all” is never the remedy for tax planning. As such, we want to note the importance of meeting with a professional on our team to ensure that you are taking advantage of any and all tax benefits available to you.


Business Tax Plan Suggestions

Purchase any business machinery and equipment before the end of the year to take advantage of the bonus depreciation that still exists.

If you have not already reviewed your expensing policy, you may be able to expense “de minimis” supplies and equipment that might otherwise need to be capitalized.

Explore a bunching strategy or an acceleration or deferral strategy to take advantage of current year tax brackets.

If your company is expecting a loss in 2014 but income in 2015, you may wish to accelerate some of the income into 2014 to take advantage of the loss in 2014.

If you company is producing products it may be beneficial to consider whether you qualify for the Domestic Production Activities Deduction.

Estate Planning

If you haven’t done so yet, now is as good a time as any to start thinking about your estate plan. Further, there are some common strategies that have been mentioned in the President’s budget that may be negatively impacted in the coming year. Some of the strategies mentioned include sales to IDITs, the use of “dynasty” trusts and the use of short term GRATs. More immediately, you may wish to consider making annual exclusion gifts ($14,000 to an unlimited number of people), funding 529 plans or setting up IRAs for the next generation.

We want to hear from you!

Taxes, being what they are, can be complicated. We are here to help you! Please, let us plan a time to get together and go over your specific situation.

We very much appreciate the opportunity to work with you!