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YEAR-END TAX PLANNING 2015
By David M. Watts, Jr.
As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the challenge include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include, for individuals: the option to deduct state and local sales and use 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 age 70- 1/2 or older; and the exclusion for up to $2 million of mortgage debt forgiveness on a principal residence.
Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case). The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year; others should try to see if they can reduce MAGI other than NII, and still other individuals will need to consider ways to minimize both NII and other types of MAGI.
The 0.9% additional Medicare tax also may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s combined income won’t be high enough to actually cause the tax to be owed.
We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from some of them.
Year-End Tax Planning Moves for Individuals:
Safeguard Your Finances From Online Threats
By Devin J. Chwastyk
Cybercrime is among the top concerns today for our business clients, but limiting the risk of identity theft should be a topic you consider at home and with your family, as well as in the boardroom. This article will provide some practical advice that you can follow to limit the risk of exposure of your financial accounts or other personally-identifiable information to hackers.
In 2014, an estimated 1.02 billion personal or financial records were exposed as a result of more than 1,500 data breach incidents nationwide. That translates to an astounding 32 records per second over the course of the year. Many of these records are deliberately hacked by criminals, largely based overseas and beyond the reach of American law enforcement. But records can also be exposed by the mere negligence of those organizations to which you entrust your financial and other personally-identifiable information, such as when records are improperly stored or discarded.
So there are good reasons why 88% of consumers say they are concerned about their online accounts being hacked. Exposure of personal information does not just risk fraudulent transactions, it also puts an enormous burden on those affected: victims of identity theft spend an average of 100 hours–and hundreds of dollars–resolving the impacts of such intrusions.
In light of these facts, many organizations are realizing that, despite their best efforts, security breaches are unavoidable. That’s why McNees has formed a dedicated Privacy and Data Security Law practice group, which combines lawyers from across our firm to assist our organizational clients in developing data security policies, managing compliance, and assisting with a response if a breach occurs.
But there are common-sense measures you and your family can take to safeguard your personal information. From our privacy lawyers, here are steps you can take to protect yourself and your assets:
© 2015 McNees Wallace & Nurick LLC
McNees Insights is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
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