With the end of the year rapidly approaching, it’s time to consider planning moves that could reduce your 2014 taxes. Just recently, many of the tax breaks that expired at the end of 2013 were extended through 2014.  Here are some of the items that have been extended:

§179 deduction is BACK to $500,000. If you need to buy equipment and want to write it off this year, NOW is the time to do it.

The deduction for teachers’ expenses: This measure lets school teachers deduct up to $250 for the cost of classroom supplies that they buy with their own money.

State and local sales tax deduction: If you itemize your taxes, this measure lets you deduct the state and local sales taxes you’ve paid in lieu of state income taxes.

Tuition deduction: Among the many education tax breaks on the books, this one is available to all tax filers, whether you itemize or not. With it, you may deduct up to $4,000 in qualified tuition, fees and related expenses for post-secondary education, such as college and graduate school. The deduction may be taken for yourself, your spouse or your dependents. But there are income limitations, and if you take it you may not take other types of education tax breaks, such as the Lifetime Learning Credit. Your deduction also is reduced by any grants and scholarships received to pay for school, as well as any money withdrawn from tax-advantaged, education savings accounts.

Deduction for mortgage insurance premiums: If you only put down a small amount to buy a home you may be required to pay for mortgage insurance to protect the lender against default. This tax break lets you deduct the cost of your premiums if you itemize your deductions.

Income exclusion for mortgage debt that’s been forgiven: When you sell your home for less than what you owe the bank or your home is foreclosed, the bank may agree to forgive the remaining debt you owe. But the IRS typically treats that forgiven debt as taxable income to you. This tax break lets you exclude it from your income.

Tax-free IRA withdrawals for charity: With this measure, anyone over 70-1/2 may take tax-free distributions of up to $100,000 from a traditional IRA if the money is distributed directly to an eligible charity.

While retirees can’t also take a deduction for that contribution, the money won’t count as income. So it won’t hurt when it comes to other taxes, such as those imposed on Social Security benefits when income exceeds a certain levels.

Tax-free savings for people with disabilities: Attached to the extender bill is the Achieving a Better Life Experience (ABLE) Act. That act will permit people who were disabled before the age of 26 — as well as their family and friends — to contribute up to a combined total of $14,000 a year to an ABLE account.  Earnings would grow tax free and the money would not disqualify the disabled person from receiving federal assistance benefits such as Medicaid and Supplemental Security Income so long as it is used to pay for housing, transportation, education and wellness.

In addition to these provisions that have been extended, there are many traditional year-end tax planning strategies that can help lower your 2014 taxable income, and postpone the payment of your taxes to later years. Therefore, we are sending you this letter to remind you of these time-tested, year-end planning strategies. This letter also highlights new tax planning opportunities available to individuals because of recent law changes.  Tax Tip. Many tax provisions impacting your 2014 income tax liability are affected by your adjusted gross income,  modified adjusted gross income, or taxable income. We highlight prominently in this newsletter the various income thresholds, etc., affecting your tax liability.

To help you locate items of interest, we have divided the planning ideas into the following topics:

– Individuals Without Qualified Health Care Coverage May Face New Tax

– Certain Taxpayers May Qualify For A New “Refundable” Premium Tax Credit

– Recent Tax Increases Make Traditional Tax Planning Strategies More Valuable

– Postponing Taxable Income

– Taking Advantage Of Deductions

– Tax Planning For Investment Income (Including The 3.8% NIIT)

– Miscellaneous Year-End Tax Planning Opportunities

Caution! Tax planning strategies suggested in this letter may subject you to the alternative minimum tax (AMT). For example, many deductions are not allowed for AMT purposes, such as:

personal exemptions, the standard deduction, state and local income taxes, and real estate taxes.  Also, the AMT can be triggered by taking large capital gains, having high levels of dividend income, or exercising incentive stock options. Therefore, we suggest that you call our firm before implementing any tax planning technique discussed in this letter. You cannot properly evaluate a particular planning strategy without calculating your overall tax liability (including the AMT and any state income tax) with and without that strategy. Please Note! This letter contains ideas for Federal income tax planning only. State income tax issues are not addressed.


Background. As one of its key components, the Affordable Care Act (ACA) requires individuals to maintain qualified health care coverage, or pay a Shared Responsibility Tax (“SR Tax”) with their individual income tax returns. Starting with the 2014 income tax return (e.g., Form 1040), individuals generally must pay an SR Tax if the individual or the individual’s dependents are not covered by a “Qualified Health Plan”(i.e, a health plan or insurance policy providing “minimum essential coverage”). Consequently, to avoid the SR Tax, an individual (and anyone the individual may claim as a dependent) generally must either: 1) Be covered under a “qualified health plan,” or 2) Qualify for a specific “exemption” from the tax as discussed below. Planning Alert! The IRS also says that an individual cannot avoid the SR Tax for someone who he or she may claim as a dependent, simply by failing to claim that person as a dependent on the individual’s tax return.

What Must Individuals Report On Their 2014 Individual Income Tax Return? The Shared Responsibility Tax (SR Tax) is computed on a monthly basis and, therefore, generally applies for each “month” an individual is not covered by a qualified health plan, and does not qualify for an “exemption.”Beginning with the 2014 income tax return (e.g., Form 1040), if you, your spouse (if filing a joint return), and anyone you could claim as a dependent were all covered by a qualified health plan for every month of 2014, you will check a box on the 2014 income tax return, and you will not be subject to the SR Tax. Otherwise, you are generally required to File new Form 8965 with your 2014 return if you are claiming an exemption. Although the SR Tax is determined on a monthly basis, the maximum amount for the entire 2014 tax year is the greater of: 1) $95 per uninsured adult member of the household, plus $47.50 per uninsured member of the household under age 18, not to exceed $285, or 2) 1% of household income in excess of the income threshold required for filing a Form 1040 return. However, the SR Tax cannot exceed the national average premium for “bronze” level health insurance offered through the new government health insurance exchange (“Marketplace”).

What Constitutes A “Qualified Health Plan”(i.e., Minimum Essential Coverage)? A “Qualified Health Plan ”is generally defined as any health plan or health insurance policy that provides the individual with “minimum essential coverage.”The IRS website states that:“The vast majority of coverage that people have today counts as minimum essential coverage.”[Emphasis added]. Thus, the vast majority of employer sponsored plans, government plans (e.g., Medicare, Medicaid, etc.), insurance policies purchased on the individual insurance market, and insurance acquired through the new “Market places” will qualify.

Who Is “Exempt” From The SR Tax? Certain individuals are generally exempt from the SR Tax, for example: 1) Certain U.S. Citizens living abroad; 2) Individuals with income below the threshold for filing an income tax return; 3) Individuals who fail to have qualified health plan coverage” or less than 3months during a year; 4) Individuals whose available health insurance is considered “unaffordable ”because it would cost more than 8%of the individual’s household income; and 5) Individuals qualifying for a “hardship exemption.” Caution! Some of these exemptions require an individual to first apply for (and obtain) an “exemption certificate ”from the new government health insurance exchange, while others are simply claimed without an exemption certificate when the income tax return is filed. For instance, as discussed in the next segment, “hardship” exemptions generally require the taxpayer to first obtain an exemption certificate.

“Hardship” Exemptions. The Department Of Health & Human Services (HHS) has released a list of more than a dozen situations where individuals may qualify for a “Hardship” Exemption. For example, individuals may qualify for an exemption if they: 1) Recently experienced domestic violence, 2) Recently experienced the death of a close family member, 3) Filed for bankruptcy in the last 6 months, 4) Had medical expenses they couldn’t pay in the last 24 months which resulted in substantial debt, 5) Were determined ineligible for Medicaid because their state didn’t expand eligibility for Medicaid under the Affordable Care Act, or 6) Experienced another hardship in obtaining health insurance. Please see the IRS website for a more complete listing of possible“ hardship ”exemptions. Note! Individuals generally must obtain an exemption certificate (discussed below) to utilize one of the above hardship exemptions.

Obtaining A “Hardship Exemption” Certificate. If an individual seeking a “hardship” exemption must have an exemption certificate, the certificate is obtained by submitting a form entitled “Application for Exemption from the Shared Responsibility Payment for Individuals who Experience Hardships” to: Health Insurance Marketplace–Exemption Processing, 465 Industrial Blvd., London,KY40741.This application form may be obtained on-line at www.HealthCare.gov. The application states: “We’ll follow-up with you within 1–2 weeks and let you know if we need additional information. If you get this exemption, we’ll give you an Exemption Certificate Number that you’ll put on your federal income tax return.”Tax Tip. If you think you or anyone in your household may qualify for one of these hardship exemptions, we suggest you begin the application process as soon as possible. If your application is approved, be sure to provide our firm with your exemption certificate.


Background. Beginning in 2014, the ACA provides a tax credit (the “premium tax credit” or “PTC”) for qualifying individuals who buy health insurance through the Marketplace. Generally, an individual qualifies for the PTC only if the individual’s household income for 2014 is at least 100% and not more than 400% of the 2013 Federal Poverty Line –based on the individual’s family size. The PTC is “refundable.”This generally means that, to the extent the credit exceeds the taxes that you would otherwise owe with your individual income tax return without the credit, the IRS will actually send you a check for the excess. However, unlike the classic refundable credit which is paid directly to the taxpayer, the PTC is generally (but not always) paid in advance during the year directly to the insurer. These payments to the insurer are generally referred to as “Advance Payments” of the PTC. Planning Alert! It has been reported that a large majority of individuals who purchased health insurance during 2014 through the Marketplace opted for Advanced Payments of the PTC to be made to the insurer.

Individuals Must Reconcile Their “Advance Payments” Of The 2014 PTC With Their “Actual” PTC. For 2014, Advance Payments of the PTC were determined by the Marketplace based on an individual’s “projected” 2014 household income. However, an individual is ultimately entitled to a PTC based on the individual’s “actual”2014 household income. Therefore, all individuals for whom Advance Payments were made for 2014 are required to file a 2014 income tax return that reconciles: 1) The amount of the “actual” PTC (based on“actual”2014 household income),with 2) The amount of the Advance Payments of the PTC (based on “projected”2014 household income ). If the individual’s “actual” PTC for the 2014 taxable year exceeds the Advance Payments made to the insurance company, the excess will reduce the taxes otherwise shown on the individual’s income tax return (e.g., Form 1040). To the extent the PTC exceeds the taxes shown on the return (before the credit), the IRS will send the individual a check for the excess. On the other hand, if the Advance Payments for the 2014 taxable year exceed the “actual” PAC (based on “actual” 2014 household income), the excess will be added to the individual’s other taxes due with the return or reduce any refund. In this latter situation, there may be a cap on this “additional tax liability, ”depending on the taxpayer’s household income for 2014.

IRS Releases New Forms For Computing, Reporting, And Reconciling The PTC. Any individual who purchased health insurance for 2014 through the Marketplace should receive a Form 1095-A (“Health Insurance Marketplace Statement”) by January 31, 2015. The information on this form will be used to complete new Form 8962 (“Premium Tax Credit”) which reconciles the individual’s Advanced Payments of the PTC with the “actual” PTC, as discussed above.


Traditional year-end tax planning typically includes strategies that lower your current taxable income and postpone the payment of taxes to later years. The classic technique to accomplish both of these goals is to defer the recognition of taxable income to later years, and to accelerate deductible expenses into the current tax year. With every increase in tax rates, these strategies become even more valuable. And indeed, last year the American Tax Relief Act (“ATRA”) of 2012 ushered in a series of permanent tax increases for higher-income individuals, including: 1) An increased top tax bracket of 39.6%(up from the previous 35%); 2) A new .9% Additional Medicare Tax; and 3) A new 3.8% tax on net investment income. As you evaluate the year-end tax planning strategies we discuss in this letter, be sure to consider the recent increase in tax rates discussed below. Planning Alert! The 3.8% Net Investment Income Tax (discussed in the “Tax Planning For Investment Income” segment of this letter), and the .9% Additional Medicare Tax are in addition to the “statutory” tax rates discussed in this segment, and therefore increase an individual’s effective marginal tax rates.

Highest Statutory “Ordinary” Income Tax Rate For Individuals is 39.6%. Last year, ATRA increased the highest statutory income tax rate to 39.6%(up from a top rate of 35%) for higher income individuals. For 2014, the 39.6%bracket applies to taxable income of an individual in excess of the following thresholds: $457,600 for married couples filing joint returns ($228,800 if married filing separate returns); $406,750 for single filers; and $432,200 for heads of households. These income thresholds are adjusted for inflation after 2013.

Highest Statutory Long-Term Capital Gain And Qualified Dividend Rate Is 20%. Last year, ATRA increased the highest statutory rate for long-term capital gains and qualified dividends from 15% to 20% for higher-income individuals. The 20% rate applies only for long-term capital gains or qualified dividends that would otherwise be taxed in the 39.6% bracket. For example, to the extent long-term capital gains of a single individual cause his or her taxable income to exceed $406,750 in 2014 (i.e., the income threshold for the 39.6% bracket), the capital gains will be taxed at 20%. Individuals with taxable income (including long-term capital gains and qualified dividends) below the 39.6%income threshold continue to have a maximum capital gains rate of 15%. Lower-income individuals may actually have a long-term capital gains and qualified dividend tax rate of zero! The zero tax rate applies where the capital gain or dividend income would otherwise be taxed in the individual’s 15% or 10% tax brackets (for 2014, taxable income up to $36,900 for single individuals and $73,800 for joint filers is taxed in the 15% bracket or below).


Deferring income into 2015 is a good idea if you believe that your marginal tax rate for 2015 will be equal to or less than your 2014 marginal tax rate. In addition, deferring income into 2015 could increase various credits and deductions for 2014 that would otherwise be phased out as your adjusted gross income increases.

Deferring Income Could Help You Avoid The Recent Tax Increases. Deferring taxable income from 2014 to 2015 may reduce your exposure to the recent tax increases if, for example: 1) The deferral of income causes your 2014 taxable income to fall below the thresholds for the new 39.6% tax bracket (i.e., $457,600 for joint returns; $406,750 if single), or 2) As discussed in more detail below, if you have income subject to the 3.8% Net Investment Income Tax (3.8% NIIT) and the income deferral causes your 2014 modified adjusted gross income (MAGI) to fall below the thresholds for the new 3.8% NIIT (i.e., $250,000 for joint returns; $200,000 if single). If, after considering these factors, you believe that deferring taxable income into 2015 will save you taxes, consider the following strategies:

Self-Employment Income. If you are self-employed and use the cash method of accounting, consider delaying year-end billings to defer income until 2015. Planning Alert! If you have already received the check in 2014, deferring the deposit does not defer the income. Also, you may not want to defer billing if you believe this will increase your risk of not getting paid.

Installment Sales. If you plan to sell certain appreciated property in 2014, you might be able to defer the gain until later years by taking back a promissory note instead of cash. If you qualify for installment treatment, the gain will generally be prorated over the term of the note and is taxed to you as you collect the principal payments. This is called reporting your gain on the “installment method.”Planning Alert! Although the sale of real estate and closely-held stock generally qualify for this deferral treatment, some sales do not. For example, even if you are a cash method taxpayer, you cannot use this gain deferral technique if you sell publicly-traded stock or securities. Also, you may not want to take back a promissory note in lieu of cash if you believe this reduces your chances of getting paid. Tax Tip. Since the “installment method” essentially allows you to spread a single gain over several years, this could cause the individual’s income in the year of sale (and possibly subsequent years) to fall below the income thresholds that kick in the top 39.6% rate, or the top 20% capital gains rate. In addition this could also prevent your income from exceeding the thresholds for the 3.8% NIIT (discussed in more detail below).


“Above-The-Line” Deductions Become Even More Important In Light Of Recent Tax Increases. So called “above-the-line” deductions reduce both your “adjusted gross income”(AGI) and your “modified adjusted gross income”(MAGI), while “itemized” deductions (i.e., below-the-line deductions) do not reduce either AGI or MAGI. Deductions that reduce your AGI (or MAGI) are particularly favorable because they not only reduce your taxable income, they also may free up other deductions (and tax credits) that phase out as your AGI (or MAGI) increases (e.g., itemized deductions, miscellaneous itemized deductions, personal exemptions, certain IRA contributions, certain education expense deductions and credits, adoption credit, etc.). In addition, “above-the-line” deductions could serve to reduce your MAGI below the income thresholds for the 3.8% Net Investment Income Tax (i.e., 3.8% NIIT only applies if MAGI exceeds $250,000 if married filing jointly; $200,000 if single).

“Above-The-Line” Deductions. “Above-the-line” deductions include deductions for IRA or Health Savings Account (HSA) contributions, health insurance premiums for self-employed individuals, qualified student loan interest, qualified moving expenses, alimony, and business expenses for a self-employed  individual. Tax Tip. Unreimbursed employee business expenses are classified as “miscellaneous itemized deductions” and trigger two potential limitations: 1) Aggregate “miscellaneous itemized deductions ”are allowed only to the extent they exceed 2% of your AGI, and 2) Any excess is included in “itemized deductions” which are phased out once your AGI exceeds certain thresholds (e.g., for 2014 –$305,050 for joint returns; $254,200 if single). However, if you arrange for your employer to reimburse you for your “qualified” employee business expenses under an “accountable reimbursement plan,” the reimbursement is excluded from your income (which is generally the equivalent of an “above-the-line” deduction). Note! We can help you establish a qualifying accountable  reimbursement plan with your employer.

Accelerating “Above-The-Line” Deductions.  As a cash method taxpayer, you can generally accelerate a 2015 deduction into 2014 by “paying” it in 2014. “Payment” typically occurs in 2014 if a check is delivered to the post office, if your electronic payment is debited to your account, or if an item is charged on a third-party credit card (e.g., Visa, MasterCard, Discover, American Express) in 2014. Caution! If you post-date the check to 2015 or if your check is rejected, no payment has been made in 2014. Planning Alert! The IRS says that prepayments of expenses applicable to periods beyond 12 months after the payment are not deductible in 2014.

Accelerating “Itemized” Deductions Into 2014.  As mentioned above, although “itemized” deductions (i.e., below-the-line deductions) do not reduce your AGI or MAGI, they still may provide valuable tax savings.

Itemized deductions generally include charitable contributions, state and local income taxes, property taxes, medical expenses, unreimbursed employee travel expenses, home mortgage interest, and gambling losses (to the extent of gambling income). However, if your itemized deductions fail to exceed your standard deduction in most years, you are not receiving maximum benefit for your itemized deductions. You could possibly reduce your taxes over the long term by bunching the payment of your itemized deductions in alternate tax years. This may produce tax savings by allowing you to itemize deductions in the years when your expenses are bunched, and use the standard deduction in other years. Tax Tip. The easiest deductions to shift from 2015 to 2014 are charitable contributions, state and local taxes, and your January, 2015 home mortgage interest payment. For 2014, the standard deduction is $12,400 on a joint return and $6,200 for single individuals. If you are blind or age 65, you get an additional standard deduction of $1,200 if you’re married ($1,550 if single). Watch Out For AMT! Certain itemized deductions are not allowed in computing your alternative minimum tax (AMT), such as state and local taxes (including state income taxes) and unreimbursed employee business expenses. Before you accelerate 2015 itemized deductions into 2014, to be safe, we should calculate your taxes “with and without” accelerating the deduction so we can determine the AMT impact of this strategy.


 Planning With The 3.8% Net Investment Income Tax (3.8%NIIT).

As mentioned previously, the Affordable Care Act (ACA) imposes a new 3.8% Net Investment Income Tax (3.8% NIIT) on net investment income of higher-income individuals. This tax applies to individuals with modified adjusted gross income (MAGI) exceeding the following “thresholds” which are not indexed for future inflation): $250,000 for married filing jointly; $200,000 if single; and $125,000 if married filing separately. The 3.8% NIIT is imposed upon the lesser of an individual’s: 1) Modified adjusted gross income (MAGI) in excess of the threshold, or 2) Net investment income. Trusts and estates are also subject to the 3.8% NIIT on the lesser of: 1) The adjusted gross income of the trust or estate in excess of $12,150 (for 2014), or 2) The  undistributed net investment income of the trust or estate. The NIIT generally applies to the traditional types of investment income, such as interest, dividends, annuities, royalties, and capital gains. However, the 3.8% NIIT also applies to “business” income that is taxed to a “passive” owner (as discussed in more detail below) unless the passive ”income is subject to S/E taxes. If you believe that the 3.8% NIIT may apply to you, consider the following planning techniques:

Roth IRAs (Including Roth IRA Conversions). Tax-free distributions from a Roth IRA are exempt from the 3.8%NIIT, and do not increase your MAGI (and, thus will not increase your exposure to the 3.8%tax). Therefore, these tax-favored features should be factored into any analysis of whether you should contribute to a Roth IRA. However, if you are considering converting a traditional IRA into a Roth, the income triggered in the year of conversion would increase your MAGI and, therefore, may increase your exposure to the 3.8%NIIT on your net investment income. Planning Alert! If you want a Roth conversion to be effective for 2014, you must transfer the amount from the regular IRA to the Roth IRA no later than December 31, 2014 (you do not have until the due date of your 2014 tax return). Caution! Whether you should convert your traditional IRA to a Roth IRA can be an exceedingly complicated issue, and this new 3.8% NIIT is just one of many factors that you should consider. Please call our firm if you need help in deciding whether to convert to a Roth IRA.

“Passive” Income.“Net Investment Income” for purposes of the 3.8%NIIT generally includes net income from a business activity if you are a “passive” owner (unless the income constitutes self-employment income that is subject to the 2.9% Medicare tax). You will generally be deemed a “passive” owner if you do not “materially participate” in the business as determined under the traditional “passive activity loss” rules. For example, under the passive activity loss rules, you may be a “passive” owner unless you spend more than 500 hours working in the business during the year or meet one of the other “material participation” test. Furthermore, subject to limited exceptions (e.g., qualified real estate professionals, rentals to a business in which you are not passive), rental income is generally deemed to be “passive” income under the passive activity loss rules, regardless of how many hours you work in the rental activity. If you believe you have “passive” income from an activity, please contact our firm. We will gladly evaluate your situation to determine whether there are steps you could take before the end of the year to avoid “passive” income classification, and thus, reduce your exposure to the 3.8% NIIT.

Traditional Year-End Planning With Capital Gains And Losses. Generally, net capital gains (both short term and long-term) are potentially subject to the 3.8% NIIT. This could result in an individual who is taxed in the 39.6% ordinary income tax bracket paying tax on his or her net long-term capital gains at a 23.8% rate (i.e., the maximum capital gains tax rate of 20% plus the 3.8% NIIT). This individual’s net short-term capital gains could be taxed as high as 43.4% (i.e., 39.6% plus 3.8%). Consequently, traditional planning strategies involving the timing of your year-end sales of stocks, bonds, or other securities are more important than ever. The following are time-tested, year-end tax planning ideas for sales of capital assets. Planning Alert! Always consider the economics of a sale or exchange first!

Planning With Zero Percent Tax Rate For Capital Gains And Dividends. Long-term capital gains and qualified dividends that would be taxed (if ordinary income) in the 15% or lower ordinary income tax bracket, are taxed at a zero percent rate. For 2014, taxable income up to $73,800 for joint returns ($36,900 if single) is taxed at the 15% rate, or below. Tax Tip. Taxpayers who have historically been in higher tax brackets but now find themselves between jobs, recently retired, or expecting to report higher than- normal business deductions in 2014, may temporarily have income low enough to take advantage of the zero percent rate for 2014. If you are experiencing any of these situations, please call our firm and we will help you take advantage of this zero percent tax rate for long-term capital gains and qualified dividends.

Making The Most Of Capital Losses. If your stock sales to date have created a net capital loss exceeding $3,000, consider selling enough appreciated securities before the end of 2014 to decrease your net capital loss to $3,000. Stocks that you think have reached their peak would be good candidates. All else being equal, you should sell the short-term gain (held 12 months or less) securities first. This will allow your net capital loss (in excess of $3,000) to offset your short-term capital gain, while preserving favorable long-term capital gain treatment for later years. Planning Alert! Your net short-term capital gains can be used to free up a deduction for any “investment interest” you have incurred (e.g., interest you have paid on your margin account). If you eliminate your short-term capital gains by recognizing your short-term capital losses, you may be restricting your ability to deduct your investment interest.


Before wrapping up your traditional year-end planning review, here are several more strategies you might consider:

Consider Increasing Withholding If Facing An Estimated Tax Underpayment Penalty. If you have failed to pay sufficient estimated taxes during 2014 potentially causing an estimated tax underpayment penalty, increasing your withholdings before the end of 2014 may solve the problem. Any income tax withholding (including withholdings at the end of 2014 from a year-end bonus or IRA distribution) is generally deemed paid 1/4 on April 15, 2014, June 16, 2014, September 15, 2014 and January 15, 2015. Therefore, amounts withheld on or before December 31, 2014 may reduce or eliminate your penalty for underpaying estimated taxes. Planning Alert! If you take an IRA distribution and have taxes withheld from the distribution to avoid an underestimate penalty, you must roll the distribution (unreduced by the withheld taxes) into an IRA within 60 days of the distribution to avoid paying taxes (and possibly a 10% penalty) on the IRA distribution. Also, you are allowed to take a distribution from an IRA and roll it over into a new IRA, only one time per year (beginning with the date you received the distribution). Please call our firm before you initiate an IRA distribution in order to increase your tax withholdings.

Certain Estates Have Until December 31, 2014 To File “Late” Estate Tax Returns In Order To Make “Portability” Election. Over the years, gift and estate taxes have generally been imposed only on estates and aggregate lifetime gifts exceeding a certain dollar amount (the “exclusion amount”). For 2014, the lifetime estate and gift tax exclusion amount is $5.34 million, and will be adjusted annually based on inflation. For individuals dying after 2010, the executor of a deceased spouse’s estate may elect for any of the “deceased spousal unused exclusion”(DSUE) amount to be added to the “exclusion amount” of the surviving spouse. This is sometimes referred to as the “portability election.”Caution! To make the “portability” election, IRS says that the deceased spouse’s estate must timely file a properly-completed estate tax return (Form 706). This filing is required even if the deceased spouse’s estate is not large enough to otherwise require the filing of an estate tax return. An estate tax return generally must be filed within 9 months of a decedent’s death, unless the estate timely obtains a 6-month filing extension. Good News! The IRS has announced that it will generally allow estates of individuals who died in 2011, 2012, or 2013 (who were not otherwise required to file a Form 706) to file a “late” Form 706 to make the portability election, provided the return is filed before 2015. Planning Alert! If you think you or someone in your family may benefit from this time-sensitive relief, please call our firm for additional information.