It’s a busy time of year. It’s wise, though, to set aside some quality time to consider tax moves that can help your business.
Here are six things you should do as soon as possible:
1. Stock up on supplies
Self-employed taxpayers who use the cash method of accounting can pay bills on or before Dec. 31, 2014, and claim the expense on their return. That makes now a good time to stock up on necessary supplies and equipment.
Remember to take advantage of the section 179 deduction for computers and other big-ticket items put into service before the end of the year. The section 179 deduction for 2014 is back at up to $500,000 now that the house and senate voted to extend tax credits that had expired in 2013 and President Barack Obama signed the bill into law. Without an extension, the deduction would have dropped to $25,000.
The $500,000 deduction extension is good only for 2014, so it’s important to make those purchases and put the items into service before the end of the year.
2. Weigh income and expenses
Sit down with your tax preparer or financial adviser and consider your tax situation now and into the future. Would it be wise to shift some income into the new year and pay taxes on it in 2015? If it looks as though your earnings will be lower in 2015, shifting income could be a good decision. You could also make January payments early. Pay a few bills in December and identify them as the January payments. A payment posted to your account in 2014 affects your taxes in 2014.
3. Set up a retirement plan
Retirement plans are a wise investment. Weigh which plan is best for you, then set aside your contributions.
401K: The maximum contribution is $17,500. A catch-up contribution of $5,500 is available for those 50 and older.
IRA: The deductible amount for a contribution to a traditional IRA is up to $5,500 per person, and up to $6,500 per person age 50 or older. Workers over 50 can make additional contributions to their SIMPLE IRAs up to $2,500. In 2014, a married couple filing jointly with a modified adjusted gross income (MAGI) of more than $96,000 but less than $116,000 can take a partial deduction for a traditional IRA. The same goes for single taxpayers (including head-of-household filers) who make more than $60,000 but less than $70,000.
Employee pension plan: If you’re self employed, you can set up an employee pension plan and contribute the lesser amount of up to 20 percent of your income or $52,000 before April 15, 2015.
4. Convert to a Roth
If you think your tax rate is going to rise sometime in the future, converting to a Roth makes sense. Withdrawals from traditional individual retirement arragements (IRAs) are taxed at your ordinary income tax rate, but all withdrawals from Roths are tax free and penalty free as long as you are at least 59.5 and the converted account has been open at least five years. You do have to pay taxes on any pre-tax contributions and earnings in your traditional IRA for the year you convert.
5. Sell loser stocks
With the stock market experiencing record highs and lows this year, perhaps you have experienced a stock market slide that has affected your portfolio. There’s still time to sell stocks or mutual funds and take the losses to offset your income.
6. Be generous.
You can give up to $14,000 to as many individuals as you like before Dec. 31 without filing a gift-tax return. If you’re married, you and your spouse can give up to $28,000 per recipient.
Check out the article HERE.