2014 YEAR END
AFFECTS OF “OBAMACARE”,
2014 - Dear Client and Friend, Now that we are coming up
to the close of 2014, I hope that you can focus on some
positive aspects of the past year and look forward to a new
year and new possibilities!
This issue is about “Planning” for the end of this year and
beyond. There have been many changes that you should be
aware of. Tips on how tax laws can help you acquire the
best plan for both your practice’s and personal financial
success are included.
LATE ADDITION TAX ALERT
Congress Passed Tax Extender
Congress finally passed the tax extender bill which
allows businesses to write off up to $500,000 of new
equipment, furniture and certain Leasehold Improvements
PLANNING FOR THE 2014 YEAR END
S-Corporations must issue you a check as an Office
Expense by December 31, 2014 to qualify your home office
The home office space must be used exclusively for
business. Your family cannot access the computer or other
equipment for personal use.
The home office must be for the benefit of the employer
and must be shown in the minutes if incorporated.
Home office deductions allow mileage for business to
start at your driveway when the trip is a business related
Company Holiday Party is not an allowable expense if it
is not documented properly. Write details that include who,
when, where, why and how much when you pay the expense. A
receipt or credit card charge will have when and amount. It’s
best to write the other details on the back at the time.
You can expense Company Team Building events held at a
beach house, ski lodge, scuba diving or backyard BBQ, but
just as the previous expense, document everything with who,
when, where, why and how much.
If your income is getting close going over the
$200,000/single or $250,000 married you may want to see if you
can defer income to 2015 and offset capital gains with capital
losses. There are two additional surtaxes of .09% and 3.8%
income exceeding the above amounts.
Accelerate expenses into 2014 to lessen the tax on high
income or do the opposite if you expect higher income in
2015. If you use your credit card for last minute expenses in
2014, you can choose to take the deduction in 2014 or use it
for 2015. You can also do this with planned contributions but
be sure it is by the year end.
You can mail your January, 2015 estimated state or
local income tax payment by the end of 2014 and take that
additional deduction for this year. However, if you will be
in Alternative Minimum Tax it is not necessary.
Make sure all personal out of pocket cash expenses have
been reimbursed from your corporation. This also applies to
home office deduction.
Consider funding your retirement plan to the maximum if
your income is going to exceed the $200,000/$250,000
maximums. Also, be sure to fund your HSA.
The rate for those with income exceeding
$400,000/single and $450,000/married remains at 39.6%, you
will need to plan around the reduction of some itemized
deductions and personal exemptions.
If your practice owns the office building, keep the
rent payments high as this “self-rental” income is excluded
from the 3.8% tax. But keep in mind; you cannot exceed the
Fair Market rental rates.
If your practice is incorporated, you can use extra
payroll withholding to make up for any personal tax
shortfalls. This is better than increasing quarterly
estimates which have penalties assessed for shortfalls.
You can have 0% capital gain rate for the sale of
assets and qualified dividends if your income is less than
$73,800/married and $36,900/single.
Consider donating stocks with high value to charity.
The contribution is for the full appreciated value and you may
avoid the new Net Investment Medicare Surtax of 3.8%. Never
donate stock that has dropped in value as you will lose a
valuable capital loss. Sell the stock, take the loss and
donate the cash from the sale proceeds.
Federal Capital Gain rate is 20% for income thresholds
of $400,000/single and $450,000/married instead of 15%. If
your income may be less in 2015, see if you can delay these
gains into next year.
Itemized deductions are reduced beginning at $300,000
for 3% of income exceeding $300,000 and 20% reduction at
$450,000 and over.
Medical Expenses must now be over 10% of your income.
If you are over age 65 you can still deduct over 7.5% for this
year only. Try bunching as many medical costs into one year
as you can. Pay the full amount for your child’s braces,
schedule elective surgeries, or if you are supporting a
dependent by providing more than 50% of their support, you can
deduct their medical costs that you pay directly. This
includes long-term care insurance. This applies even if you
cannot claim a personal exemption due to a high income or if
the person has income of $3,950 or more.
No personal exemptions for incomes of $400,000/single
For income exceeding $600,000 - $1,000,000 there is an
additional 1% to 5.5% increase with California’s new
Proposition 30 tax.
Final note: don’t do anything foolish to get a
deduction. a) It’s better to pay tax on gains than to deduct
b) Never pay a dollar for
something you don’t need just because it gets you a dollar
deduction and c) avoid investments that make no economic sense
without the help of some special tax advantage such as
variable annuities or whole life insurance. Remember
Congress can change the tax rules mid-game on those.
You cannot take an interest deduction on past-due
mortgage interest that is rolled over into a new loan. Your
deduction is limited to the actual interest paid during that
To reduce your estate you can gift down to the next
generation. You can give up to $14,000 (or $28,000, if with
spouse) per year to as many as you choose without affecting
your lifetime estate tax exemption. For anything over that
amount you must file Form 709 Gift Tax Return. There may not
be any gift tax due, but the gift tax return is required.
You can pay a child’s or grandchild’s tuition or
medical costs and not have it count toward the $14,000 limit,
but the payments must go directly to the school or medical
You can also gift your appreciated stock to your child
over age 24 for a 0% capital gain rate (assuming their AGI is
not over the limit of $36,900/single, $73,800/married). The
“KiddieTax” now taxes investment income for a child under 19
(or 24 if a full-time student) at the parents’ higher rate,
therefore it’s not recommended for those ages.
EQUIPMENT PURCHASING BY 2014 YEAR END
Under Section 179 the deduction for purchasing equipment for
2014 is $25,000. Before making year end purchases, review
your past year purchases to be sure you aren’t over the
If you are considering the purchase of a heavy SUV, (weight
over 6,000 lbs) you can still deduct $25,000 in the first year
(must be for 100% business use). The purchase of vehicles
under 6,000 lbs is only allowed the regular depreciation.
CAPITALIZATION TAX LAW CHANGES
Repairs and Maintenance
Supplies under $200 per item or which will be consumed
in 12 months can be immediately written off as an expense. If
it exceeds $200.00 or will last over one year, the cost must
be capitalized and written off over 5-39 years.
Repairs or maintenances costs of $500 or less per item
or project and where the repair would be done more frequently
than every 10 years, can be expensed immediately. Items over
$500 must be capitalized and written off over 5-39 years. You
cannot break up large repair and maintenance projects into
smaller, separate invoices to get around the total.
These are costs that are paid to improve a piece of
property and they must be capitalized and written off
over the same depreciable life of the property if:
It is for the betterment of the property, i.e. a
material addition to the property or material increase in
It is a restoration of the property.
It adapts the property to a new or different use
(rebuild to like new; not routine maintenance)
HOW DOES “OBAMACARE” AFFECT US IN 2014?
You must have
health care coverage by 2014, and report on your tax return
(check a box and sign “under penalty of perjury”), or pay the
penalty ($95/adult, $47.50/child or 1% of household income,
whichever is higher). This includes your spouse and
dependents. There are, however, 33 exemptions from the
The plan must be
a “qualified” plan, which is, according to the Affordable Care
Act the “bronze” level plan or better.
If you are a 2%
or higher owner of an S-Corporation, you must include the
total amount the Corporation pays for the cost of your health
insurance on your 2014 W-2, in order to take the Self-Employed
Health Insurance deduction.
If you purchased
insurance on the “Exchange” or “MarketPlace” look for Form
1095-A to prove you have Minimum Essential Coverage in
January, 2015. You need to include this in your 2014 personal
income tax return.
If you are
receiving a government credit or subsidy on your premium, you
must be sure the advanced credit matches the actual credit
based on your actual income for the year. You may have to
repay some back or you may be eligible for additional credits
if your income has changed from the estimate. Remember the
income is based on household income and may also include your
dependent’s income also.
Under ACA a “net
investment income tax” (NIIT) of 3.8% is imposed on
individuals, estates, and trusts.
certain income thresholds will have to pay 0.9% Medicare
Hospital Insurance tax.
Starting 2015, if
you are an employer who provides minimum essential health care
coverage to others, you are required to report the coverage to
the individuals and the IRS.
It has now been
determined (by the Department of Labor) to be an “illegal”
plan under the Affordable Care Act, if you, as an employer,
provide your staff with money to purchase their own or
reimburse the employees for that cost. This money must be
reported as wages.
TOP RED FLAGS THAT SPUR IRS TO AUDIT RETURNS
A Sole Proprietor, non-incorporated practice that has
no income, just expenses.
Personal Service S-Corporation that has no salary for
Not fully documented automobile expenses. Keep a log
of total business mileage, stating where, why, what.
Claiming deduction for meal expenses with no
documentation. Again, keep a log of where, why, what.
Claiming tuition as a business expense. Education
expenses must: a) maintain or improve skills required of the
individual in their employment or business; b) is a
requirement from your employer, law or regulations; c) is a
condition to the retention of an established employment
If you hire your children to work in your practice, be sure
that the wage is commensurate with the tasks. Have them keep a
log of time and tasks performed. Be sure to pay them by
payroll check and have their own bank accounts set up to put
their money in. Do not mingle their money with yours nor
count credit card payments toward that amount. Never pay for
Let’s Talk Retirement!
practice retirement plan contributions is the single best tax
shelter available. The long-term advantages overwhelm the
costs when the doctor and family members get at least 65% of
the annual costs. If starting a new plan consider getting at
least 70% of the contribution or amend a current plan if
Dollar limits on
retirement plans will be higher in 2015:
401(k) contribution limit will be $18,000 and for
individual born before 1966, $24,000.
SIMPLEs will increase to $12,500 and for those age 50 +
in 2015, $15,500.
Roth IRA contributions phase out with AGIs of
$183,000-$193,000/married and $116,000-$131,000/singles.
Regular IRA phase-out’s will range from
$98,000-$118,000/married and $61,000-$71,000/singles.
Medicare Part B premium will stay at $104.90 a month in 2015.
Those of you 70 ½
and over must take your withdrawals from your traditional IRAs
by the end of the year or pay a penalty. The withdrawals are
based on the balances for all IRAs, but the total amount of
the minimum withdrawal can be taken from any IRA you wish. If
you are working past 70 ½ and you own 5% or less of the
practice, you can delay taking payouts from a retirement plan
of that practice until you retire.
If you turned 70
½ just this year, you can delay the payout for 2014 to April
1, 2015 for this one-time only. Just remember, you will have
to take an additional withdrawal for 2015 during that calendar
year and this could put your income into the next tax
Here are the
deadlines for establishing IRAs and retirement plans.
To take 2014 deductions, a regular IRA must be
stablished by April 15, 2015. The payins are due by then
also. Nondeductible contributions are due at the same time to
both regular IRAs and Roth IRAs.
Employer plans, such as Keoghs and Profit Sharing, must be in
place by Dec. 31, 2014 for the contributions to be taken in
2014. If you are self-employed and missed that deadline, you
can open up a SEP by the due date for filing your 1040, plus
any extension of that. The payin caps for both are at 20% of
net self-employment earnings.
FOR YOUR VISIT TO THE ACCOUNTANT!!
To speed up the
process of the dreaded tax appointment here are a
1. Time to sort.
At minimum sort the information into the basic
categories. If you have a lot of something, then
sort into sub-detail categories. A basic list of the
more common items is here for your use.
- Interest Income (1099 INT)
- Social Security
- Dividends (1099 DIV)
- Investments (1099 B)
- Business income (K-1s)
- Winnings (W-2G, 1099 G)
- Other Income Items
- Student loan interest
- Educator expenses
- IRA contributions
- Tuition & fees deduction
- Moving expenses
- HSA/MSA contributions
- Alimony paid
- Other education expenses
- Taxes Paid
- Medical/Dental expenses
- Casualty/Theft losses
- Charitable contributions
- Investor/other expenses
- Unreimbursed employee
- Interest expense
> (mortgage/home equity)
- Child & dependent care expense
- Adoption expenses
- Education expenses
- Other credit related expense
- Sort income and expenses for each business
activity or hobby activity or rental unit.
Miscellaneous – include any items you
are not sure about
2. Is something missing? Pull out last
year’s tax return and create a list of things you
needed last year. Use this as checklist against this
year’s information. While this process will not
identify new items, it will help identify missing
items that qualified in prior years.
3. Finalize required
documentation. Certain deductions require
substantiation and/or logs to qualify your expense.
Common areas that require this are: business
mileage, charitable mileage, medical mileage, moving
mileage, non-cash charitable contributions, and
certain business expenses. These logs should be
maintained throughout the year, but now is a good
time to make sure they are complete and ready to go
for tax filing.
you found this information useful for your tax planning in
your practice and/or personal life. I am always available to
assist you further in your tax or financial needs. Please feel
free to call the office at 714-619-0667 or visit my website at
www.mydentalcpa.com where you will find additional
information and many tools for you to use for your tax needs.
I wish you all a Happy, Healthy, Prosperous New Year.
Remember, your success is our business!
Monica Rebella, CPA
To read this & my other articles online go to
and click on the Newsletter section.
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA/IAR
President, Rebella Accountancy