Year-end is a busy time for all of us. The holiday season is in full swing, and everyone is zipping around picking up gifts, wrapping them, shipping packages and getting those cards in the mail. Truth be told, I actually don’t end up partaking in many of these activities. My wife, Paula, handles most of them for our family, but I always pick out my own Yankee Swap gift. I put much thought and strategy into that gift. What I do spend a lot of time on at this time of year is year-end tax moves for investment portfolios under our management to make sure we take full advantage of the tax code “gifts” available to us.
Congress has been busy these last few weeks of December cleaning up the tax code too – retroactively for 2014. On Dec. 16 the Senate passed H.R. 5771, known as the Tax Increase Prevention Act of 2014, or more simply the “Tax Extenders” legislation. At this writing, it is still awaiting the president’s approval. In its final form, the legislation “patches” the tax extenders for one year, retroactively reinstating a wide range of provisions that technically lapsed at the end of 2013, to now be available for the current 2014 tax year.
One of the popular rules for those charitably inclined is the extension of the qualified charitable distribution (QCD), which allows someone over the age of 70 1/2 to make a QCD to satisfy their required minimum distribution (RMD). This will satisfy the RMD while completing a charitable bequest, if it’s not already been completed for the year.
Likely another popular one is a $250 deduction for schoolteachers for unreimbursed expenses paid by eligible educators for books, supplies, computer and other equipment, and supplementary materials. With the tight local budgets, we’ve all seen teachers spending their own money to enhance their classroom experiences.
We also see an extension on Section 25C credit, which extends tax credit for taxpayers who make energy improvements to non-business property. So if you made any improvements or upgrades this year, be sure to check this out.
For those who commute by public transportation, the maximum for qualified transportation fringe benefits (e.g., transit passes and vanpooling) is excludable up to $250/month (up from $130/month without the extension), keeping it at parity with qualified parking benefits (also at $250/month.)
For those paying private mortgage insurance (PMI) on a mortgage issued since 2007, and who meet certain income requirements, you will be able to deduct mortgage insurance premiums as (qualified residence) mortgage interest.
One permanent change voted on at year-end is the Achieving a Better Life Experience (ABLE) Act of 2014. The ABLE Act allows people with disabilities and their families to set up a special savings account for disability-related expenses. Earnings on an ABLE account would not be taxed, and account funds would generally not be considered for the supplemental security income (SSI) program, Medicaid, and other federal means-tested benefits.
The details are still being worked out on how these accounts will work. However, in general, they will be similar to 529 College Savings Plans, which will allow states to roll out Section 529-ABLE plans beginning in 2015, which would accept contributions that could be invested on behalf of eligible individuals with a disability. This would be someone who becomes disabled before age 26 and (1) receives Social Security Disability Insurance (SSDI) or SSI; or (2) files a disability certification under rules that the IRS will write.
Sadly, this “Tax Extender’s” bill has a shelf life of about two weeks and will be outdated when Congress reconvenes next year. Which is probably similar to the shelf life of many of the gifts we are so busy giving and receiving at this time of you.
Hopefully, you can step back and remember that this holiday season is really about spending quality time with those we love and appreciate. I’m so grateful to all of you who read this column each month. I enjoy hearing from you and receiving your feedback. May your holiday season be filled with many blessings. Together, let’s make 2015 the best year yet.
Bill Harris is a certified financial planner practitioner. He is a member of the board of directors for the Financial Planning Association of Massachusetts and an Ed Slott Elite IRA Advisor. He is a co-founder and principal of WH Cornerstone Investments in Duxbury and Kingston. He can be reached at www.whcornerstone.com or 888.797.9009.