I’m back. It was good to take a little time off after year-end planning season and before the 2013 return season starts. But now that it’s 12 below with howling winds, I might as well be at the office.
It was sort of a busman’s holiday, though, as I got an early start on my 2014 year-end tax planning. While December year-end planning is important, it’s asking a lot of one month to do the work of all 12. You can do some important tax planning in January that will pay off all year long. For example:
– You can fund your 2014 Individual Retirement Account right now. If you are married, you can also fund your spousal IRA. The maximum contribution is $5,500, or $6,500 if you will reach at least age 50 by December 31, 2014.
– You can fund your 2014 Health Savings Account today too. The HSA limit for taxpayers with a high-deductible plan and family coverage is $6,550 this year; for a single plan, the limit is $3,300. You need to have a qualifying high-deductible insurance policy, but if you do, you can deduct your contribution and withdraw funds for tax-deductible expenses tax-free. If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs. If you stay too healthy to use the funds on medical care, withdrawals are taxed much like IRA withdrawals.
Using spousal IRAs and an HSA, a 50-year old with family coverage can tuck away a combined $19,550 right now and have it earn interest or dividends tax free right away — 15 1/2 months sooner than if you wait until April 15, 2015, the last day you can make these contributions. And by saving it now, you won’t be tempted to spend it later in the year.
A few other things that you can do right away to get some of your 2014 year-end planning out of the way:
– If you care about estate planning, nothing keeps you from making the $14,000 maximum 2014 exempt gift to your preferred family donees right now.
– Make sure you’ve maxed out your 2014 401(k) deferral with your HR people — or at the very least, be sure you are deferring as much as you can get your employer to match.
– If you are an Iowan with kids, you can make a 2014 College Savings Iowa contribution that you can deduct on your 2014 Iowa 1040. The maximum deductible contribution is $3,098 per donor, per beneficiary, so a married couple with two kids can put away $12,392 right now. The Iowa tax benefit works like an 8.98% bonus to you for putting money in your college savings pocket.
TaxProf, The IRS Scandal, Day 242: Lois Lerner Is 2013 Tax Person of the Year. The TaxProf provides access to a Tax Analysts piece that says:
While many of the Service’s problems were not necessarily its own fault, the exempt organization scandal was an almost entirely self-inflicted wound. No one personifies that scandal more than Lois Lerner.
Lerner ignited a political and media firestorm when she confessed in May that the exempt organizations unit of the IRS Tax-Exempt and Government Entities Division inappropriately handled many Tea Party groups’ exemption applications.
The now former exempt organizations director’s admission and subsequent refusal to testify before Congress contributed to her becoming the public face of the scandal. Although Lerner does not bear sole responsibility for the IRS’s missteps in processing conservative groups’ exemption applications, the publicity of her role in one of the year’s biggest news stories earns her the distinction of being Tax Notes’ 2013 Person of the Year.
And in spite of much wishful thinking, it is a scandal.
It’s worth noting that Tax Analysts gives an honorable mention to Dan Alban, the Institute for Justice attorney behind the District Court defeat for the IRS preparer regulation power grab.
William Perez, How Soon Can a Person File Their 2013 Tax Return?: “The Internal Revenue Service plans to begin processing personal tax returns on Friday, January 31, 2014, for the tax year 2013 (IR-2013-100).” But don’t even try to get it done until you have your W-2s and 1099s all in hand.
Jana Luttenegger, Reinstating Tax-Exempt Organizations (Davis Brown Tax Law Blog). She explains new IRS procedures for organizations that have lost their exemption by failing to file annual reports with the IRS.
Paul Neiffer, Remember Your Simplified Home Office Deduction
Russ Fox, 1099 Time. A look at who has to issue information returns, and who gets them.
Robert D. Flach poses AN ETHICAL, AND PERHAPS LEGAL, DILEMMA:
Beginning with the 2014 Form 1040, am I legally, or ethically, required to assess my client a penalty for not having health insurance coverage? Or can I, as I do with the penalty for underpayment of estimated tax, ignore the issue and leave it to the IRS to determine if a penalty is appropriate? Will I face a potential preparer penalty if I ignore the issue?
It’s a good question. I suspect they plan to make us ask the question, under the same sort of rules that make preparers unpaid social workers for the earned income tax credit. I don’t expect to ever have to ask the question, though, as I think this dilemma will resolve itself by an indefinite delay, and eventual repeal, of the individual mandate as Obamacare falls apart.
David Brunori, State Tax Reform Advice for 2014 – Think About Spending (Tax Analysts Blog). Sometimes I think that’s all they think about. But hear David out:
But in thinking about tax reform efforts in the past year, I am more convinced than ever that our refusal to rethink the size of government makes fixing problems with the tax code impossible. Here is what we know. Cutting government programs is difficult because each program has a constituency that will fight like a gladiator to protect its access to public money. So when the topic of tax reform comes up, conservatives and liberals vow to find a fix that will neither raise nor decrease spending. But we also know that politicians – the majority anyway – generally hate raising taxes. This reflects the fact that most of their constituents hate the idea of paying more taxes. But the costs of government continue to increase. And that leads to worse tax policy as states look to gimmicks, excises, gambling, and other junk ways of collecting revenue. It also ensures that some horrible tax policies are never fixed.
If the government dialed back spending to population-and-inflation adjusted 1990 numbers, I don’t think mass famines would result.
Scott Hodge, Despite Rising Inequality, Tax Code is at Most Progressive in Decades (Tax Policy Blog). I’m not sure “despite” is the right word here.
Annette Nellen, Continued bonus depreciation or tax reform?
Cara Griffith, Cyclists: The Next Great Source of Tax Revenue? (Tax Analysts Blog):
While I strongly believe taxes should not be used to encourage or discourage behavior, the effect of requiring cyclists to register their bikes is not the big problem with these types of proposals. The real problem is that they don’t raise any revenue. Dowell’s suggestion that a bike registration fee would raise some $10 million for the city of Chicago is a pipe dream. Almost every cent would be used simply to administer the program.
From the interests of the bureaucrats proposing the program, just funding new patronage jobs is a perfectly acceptable result.
Howard Gleckman, Time To Park The Commuter Tax Subsidy (TaxVox)
Peter Reilly, Are IRS Property Seizures The Stuff Of Reality TV? Now there’s some grim viewing.
The ISU Center for Agricultural Law and Taxation has a shiny new look at its website.
The Critical Question: If You Won the Lottery Tomorrow, Would You Still Go to Work? (Going Concern). Only to clean out my desk, and laugh.
Tags: TaxProf, Kay Bell, Russ Fox, David Brunori, Robert D Flach, William Perez, Paul Neiffer, CALT, Going Concern, Obamacare, Howard Gleckman, Scott Hodge, Peter Reilly, Jason Dinesen, Jana Luttenegger, ACA, Cara Griffith, Dan Alban, IRS disclosure scandal, Lois Lerner, Annette Nellen