4 Issues that will Dominate Year-end Tax Planning Discussions
With only 6 weeks left until the end of the year, it won’t be long before it’s time to start filing tax returns for the 2014 year.In what is becoming the new normal, the IRS has already taken steps to prepare the tax payers for a rocky start to the tax season.
The current expectation is that the start of filing season will be delayed, and the IRS commissioner has essentially indicated that IRS will likely only be able to answer about 53% of calls to its phone service following a 34 minute wait time.In addition to the expected IRS administration delays, we have identified four major issues that will dominate year-end tax planning discussions with my clients and lead to the most questions and concerns into the filing season.
Affordable Care Act (Obamacare) – Unless you are currently exempt, you may potentially have to pay a penalty with your tax return. For non-exempt individuals the penalty for 2014 may be as low as $95. However the penalty fee is set to increase in 2015 and into 2016.
Action plan - While it’s probably too late to avoid penalties for 2014, you should act now to get coverage in place for 2015 to avoid the higher penalty next year.
Net Investment Income Tax – Though the Net Investment Tax started in 2013, I feel its impact will be greater moving forward into 2014. As the economy strengthens, salaries have been increasing, pushing more people into the income range where the net invest income tax will apply. As equity and property markets have recovered and strengthened, many investors are taking profits, thereby increasing net investment income and resulting in the additional tax that follows.
Action plan - If you have an investment income in addition to your salary or a large capital gain for the year, use the next few weeks to plan for the increased tax bill that will greet you when you file your return. Harvesting capital losses may also be a strategy to consider if available.
FATCA - Anyone with foreign assets should be declaring them annually, depending on the value of the account. It’s possible the same assets need to be declared twice, on both FinCen 114 and Form 8863 on the tax return. A recent change is that most foreign banks will now be required to report your accounts to the IRS for you. There is no personal exemption on reporting and you will still be required to report all foreign assets, however your chances of getting caught are increased if you fail to report accurately.
Action Plan - If you have foreign assets over the thresholds that you haven’t declared in the past, it’s going to be harder to hide going forward. The IRS currently have voluntary disclosure programs available, which allows tax payers the opportunity to come into compliance with little reduced penalties. If you currently aren’t complying, either intentionally or accidently, now is the perfect time to move towards resolving the situation.
Changes to depreciation –This is one of the biggest changes for the year, and it has gone relatively unnoticed. The IRS has now issued guidance on how your assets should be depreciated if they are used in business or in a rental property. If this affects you, there is a new schedule to be completed for 2014.
Action Plan - If you have any asset used in trade or business (including rental properties) you may need to revisit how these assets are used in your business and ensure you are claiming the correct depreciation.If you are currently using any assets in trade or business, including rental properties, it may be worth visiting how these assets are used to ensure you are claiming the correct depreciation.
While there are many other changes in 2014, the above will likely have the greatest impact. If any of these issues applies to your situation, you should seek advice prior to December 31. By the time you file your tax return in the New Year it is generally too late to implement many of the strategies that could save you tax.Transpacifictax offers tax assistance, specializing in assisting Australians living in the U.S. you can request a consultant to discuss your specific circumstances at: mytax@transpacifictax.com.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.