Another year is coming to an end! As the conclusion of 2014 draws near, ATBS wants to help all of our clients ensure that they have taken the necessary steps to make sure that their bases are covered when it comes to their tax liability. We have included some of the most common year-end planning tips that can help you avoid an unwanted tax surprise come April 15, 2015.

Year-end Tax Planning for Company Drivers

Adjust your tax withholding. 

All employees have federal income tax withheld from their W-2. The amount withheld is determined by the number of exemptions you have claimed with your employer on Form W-4. If you think it is possible that your tax withholding will fall short of your total 2014 tax liability, it might be a good idea to increase your withholding through the remainder of tax year 2014. Conversely, if you think that you are over-withholding, you may get a larger refund than is expected. 

If either situation applies, the solution is to complete a new IRS Form W-4 (Employee’s Withholding Allowance Certificate) and give it to your employer. You can enter any additional amount that you would like withheld from your paycheck for taxes until the end of the year. This is completed on Line 6 of Form W-4. If you are eligible for less to be withheld from your pay, update the withholding allowances on line 5. The IRS has a Withholding Calculator on their website, irs.gov, to help you fill out the W-4 form. Please note, any adjustments to your tax withholding and/or exemptions claimed, will be in effect until you change them by completing a new Form W-4.

Whenever you start new employment as a W-2 employee, you are required to fill out a lot of paperwork. One of the first forms that you receive upon being hired is Form W-4. The W-4 is a tool to help your employer identify the amount of tax that should be withheld from each of your paychecks. This form is a great estimating tool to ensure that you don’t overpay or underpay on your income taxes – provided that it is filled out accurately. Changes in marital status, working two jobs as opposed to one, or the birth of a child all will impact your W-4 information. Make sure that whenever one of these changes occurs, you obtain a new Form W-4 from your employer and update your information to ensure that you are not over or under withholding taxes from your income. 

The Affordable Care Act. 

The tax implications of the Affordable Care Act (ACA) will start being felt during the preparation of your 2014 taxes. If you purchased health insurance coverage through either the State-Run or Federally-Run Health Care Exchanges (Marketplaces), you were able to select one of two choices for paying your premiums. The first option was that you paid full price for your monthly health insurance premiums and then (if you qualified for the subsidy) would receive a premium assistance credit once your 2014 tax return is filed. The second, and most popular option, was to estimate your expected income for 2014 and have your premium assistance credit (if you qualified for the subsidy) applied to your monthly insurance premiums to lower the monthly premium payments. While the second option was more popular because it resulted in lower monthly premium payments, it could cause problems for the end of year taxes if you under estimated your expected income for 2014.

Changes that will affect your premium assistance credit include changes in income (pay raises or pay decreases), employment (hiring or termination), or family size (birth, death, or change in dependents). If your income increased, an unemployed spouse gained employment, or your number of dependents lowered from a previous year, the advance credit payments that you received to lower your monthly premium payment will be reconciled on your 2014 tax return and any overpayment of the credit will need to be paid back. If you lost your job, received a decrease in pay, or gained a dependent, the premium tax credit will be reconciled on your 2014 tax return and you may benefit from an additional credit.

You should review your family circumstances and health care coverage you had during the year. If you did not have any health care coverage for the year and did not qualify for an exemption, you will be subject to an Individual Shared Responsibility Payment (tax penalty). Talk to an ATBS tax professional about whether you qualify for one of the listed exemptions. 

2014 Year-end Tax Planning for Company Drivers

Pay estimated tax if required. 

For many, their end of year tax refund/amount owed is not a surprise because they were aware of all income earned throughout the year. Once in a while, a surprise will come and it is usually because the taxpayer was unaware that they are required to pay estimated tax on some non-W-2 income earned throughout the year. 

Income that may require estimated tax payments includes self-employment income, interest and dividend income or rental income. The “free” $100 you may have received when opening a new bank account is actually considered interest income and will need to be accounted for as income when you file your 2014 tax return. That rent you received for the basement apartment you have is considered income and requires you to make estimated tax payments to the IRS and state taxing authority for all net profits earned from rental activities. The second business that you have repairing cars on the side also requires estimated taxes be paid to the IRS and state for the total net income received. 

If you expect to owe the IRS $1,000 or more in taxes or meet other conditions, you may be required to pay this tax or face a monetary penalty from the IRS and potentially the state taxing authority. Generally, if you do expect to owe tax, it should be paid on a quarterly basis: April 15th, June 15th, September 15th and January 15th of each year. To pay the tax, print off IRS Form 1040-ES (Estimated tax for individuals) and include it with your payment to the IRS. 

Charitable contributions. 

Send cash donations to your favorite charity by December 31, 2014 and retain your canceled check or credit card receipt as proof of your donation. You will also need an acknowledgement from the charity if you contribute $250 or more.

Also, as the year comes to an end, you may consider cleaning out your closets and garage. Donations of household items, to a qualifying charitable organization, may help reduce your tax liability if you itemize your deductions.

If you donate a used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle's fair-market value if the charity uses the vehicle in the charity’s normal operations or if the charity gives it to a needy individual.

Retirement plan contributions. 

Consider making a contribution to your 401(k) or similar employer-based retirement plan (not including Roth). Contributions to a non-Roth 401(k) or Individual Retirement Account (IRA) plans are excluded from your income, thereby, lowering your tax liability.

If you're not yet on track to max out your retirement contributions by year-end, you can direct some earnings to your retirement plan during your last couple pay periods.

For 2014, employees can contribute up to $17,500 to an employer-based 401(k) plan, or $23,000 for employees age 50 and older. Generally, the contribution limits for IRA’s are $5,500 for individuals under age 50 years old and $6,500 for individuals who have reached age 50 or over in 2014.

End of year tax planning can be very complex. If you have any questions, please contact your ATBS tax professional to discuss how ATBS can help you get organized to ensure that there are no surprises when April 15th rolls around.

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Image source: https://www.flickr.com/photos/nomadic_lass/with/14025415635/

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Mike Calahan, ATBS Tax Services Manager

Mike Calahan joined ATBS in July of 2014 with more than 11 years of tax and accounting experience. He has a diverse background in tax with an emphasis in individual taxation, partnership taxation and several years experience with small businesses. As Manager of Tax Services, Mr. Calahan oversees the tax return preparation process, tax resolution services and supervises a large staff of tax professionals. He graduated from Regis University in 2004 with a Bachelor of Science Degree in Accounting and is an Enrolled Agent with the IRS.

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