NEW YORK, N.Y. – As 2014 gets underway, UHY LLP is offering a series of tips for individuals and businesses as they look to strengthen their financial foothold.
The financial tips range from debt consolidation and charitable contributions to 401k management and home office tax deductions.
“The start of a new year is the ideal time for individuals and businesses to make changes that will have a positive financial impact both immediately and in the long term,” said Stephen Slater, Partner at UHY LLP. “An annual review of your financial strategy is the best way to ensure you’re making the smartest, most up-to-date financial decisions for your family or business.”
Slater offers the following financial resolutions in 2014 for individuals and businesses:
- Take advantage of your company’s 401(k) match
If your company has a 401(k) plan and offers a matching contribution, take advantage of it. Not doing so is in effect refusing a free company handout. If, for example, your company offers a match of 50% of every dollar that you contribute up to 3% of your salary, you should contribute at least 3% of your salary to the plan. The maximum for 2014 is $17,500 or $23,000 if you are age 50 or older.
- Convert high-interest, non-deductible debt to low-interest deductible debt
If you have incurred credit card debt and are paying high non-deductible interest costs, consider applying for a home equity loan, not to exceed $100,000. Up to $100,000 of home equity debt is deductible regardless of how you use the money. Remember that a home equity loan is secured by your home. Therefore, it only makes sense if you have good credit, and you can afford to pay your current mortgage payment as well as the home equity loan payments. The deduction might be limited if you are subject to the Alternative Minimun Tax (AMT).
- Consider deferring the spending of the investments in your HSA
A Health Savings Account (HSA), when combined with a high-deductible health insurance plan, is designed to cover expenses not paid by your health plan, such as deductibles, coinsurance, copayments, as well as other eligible expenses. An HSA offers a triple benefit. Contributions are tax deductible, earnings on investments are tax-free, and withdrawals for qualified expenses are tax-free. Since amounts that you don’t spend in your HSA in one year can be carried over from year to year, it may be wise to let the investments continue to accumulate tax free, and use them to cover future qualified medical expenses, including those in retirementand. In 2014, the maximum contribution that can be made for employees with single coverage is $3,300, and the maximum contribution for employees with family coverage is $6,550. For those ages 55 or older, you can contribute an additional $1,000.
- Don’t be afraid of the home office deduction
Contrary to popular belief, there is no evidence that claiming the home office deduction will trigger a tax audit. A legitimate home office can convert many nondeductible personal expenses, such as rent and utilities, into tax deductions and reduce your taxable income if you are self-employed and even under certain circumstances if you are an employee. In order to qualify, you must use a portion of your home for qualified activities exclusively and regularly. And beginning with the 2013 tax year, there is now a simplified method to compute the deduction, which significantly reduces the record-keeping burden.
- Keep track of the basis of your home
When you sell your home, your adjusted cost basis is subtracted from your sales proceeds to determine your capital gain. If you have lived in your home for at least two of the previous five years, then you can exclude up to $250,000 in capital gains, or up to $500,000, if you are married filing jointly. In view of the fact that the maximum long-term capital gains rate has gone up from 15% to 23.8%, it is that much more important to capture each and every available addition to your basis. You are entitled to include in basis all home improvements, which are generally items that add to the value of the home and have a useful life of more than one year. Also included are the myriad costs associated with the house purchase, such as land survey costs, inspections, and legal fees. It is important to keep relevant documents, such as contractor bills, store receipts, and the closing statement of the house purchase.
- Find summer help for your business at home
If you are self-employed and have children under age 18, consider putting them on the payroll during school vacation or otherwise. The payments will not be subject to social security and Medicare taxes if the business is a sole proprietorship or an LLC or partnership, assuming each member or partner is a parent of the child. There will be further savings for the child. As long as the wages are below the standard deduction –$6,200 in 2014 – the child will not be subject to federal income taxes. In addition, a portion or all of the earnings could be invested in a Roth IRA. This strategy became even more beneficial starting in 2013 with the imposition of the new .9% Medicare tax on wages and self-employment earnings exceeding $200,000 ($250,000 for married couples filing jointly). Of course, for the strategy to work, the child must actually perform work, and receive reasonable wages. You also need to be aware of and understand the federal and state child labor laws.
- Adjust your W-4 withholding allowances
Unless you are getting back more than you paid in via refundable tax credits, a tax refund is merely a reimbursement for interest-free loans you made to the government. To get faster access to your money through your paycheck, increase your withholding allowances on an updated W-4 form. Withholding allowances not only pertain to the value of your dependent exemptions but also to your tax deductions, such as home mortgage interest and charitable contributions. The flip side of this strategy is to make sure that you don’t have too little withheld from your paycheck resulting in an unexpected tax bill with underpayment penalties added on. Do your research and speak to a tax professional if you’re unsure how to proceed.
- Donate appreciated stock to charity
If you are planning to make a relatively substantial contribution to a charity, consider donating stock from your investment portfolio that has appreciated in value. As long as the stock was held for more than a year, there will be tax savings for those who are in a greater than 15% tax bracket. The tax benefits, which include deducting the amount of the charitable contribution and also escaping the unrealized gains on the donated stock, come from the fact the deduction is equal to the stock’s current fair market value. The amount of the tax savings will be the foregone tax on the capital gain that you would otherwise have had to pay. With the increase in the maximum long-term capital gains rate, from 15% to 23.8%, nearly a 60% increase, the value of this strategy becomes that much more significant.
For more information about UHY, please visit www.uhy-us.com.
About UHY LLP
UHY LLP, a licensed independent CPA firm in New York, performs attest services through an alternative practice structure with UHY Advisors. UHY LLP conducts operations in New York as a subsidiary of UHY Advisors, Inc. The firm also has offices in: Albany, NY, New Haven, CT, Farmington Hills, MI, Oakland, NJ, Chicago, IL, NYC, NY, Atlanta, GA, Sterling Heights, MI, Dallas, TX, Washington, D.C., Rye Brook, NY, Columbia, MD, St. Louis, MO, and Houston, TX. UHY Advisors, Inc. and its subsidiary entities have nearly 1,000 professionals providing services from offices throughout the United States. UHY Advisors is ranked as one of the Top 20 professional services firms providing tax and business consulting services in the country by Accounting Today.
UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. For additional information, please visit their website at www.uhy-us.com.