Many expenses that may qualify as miscellaneous itemized deductions are deductible for regular tax purposes only to the extent they exceed, in aggregate, 2% of your adjusted gross income (AGI). Bunching these expenses into a single year may allow you to exceed this “floor.”

So now is a good time to add up your potential deductions to date. If they’re getting close to — or they already exceed — the 2% floor, consider incurring and paying additional expenses by Dec. 31, such as:

• Deductible investment expenses, including advisory fees, custodial fees and publications

• Professional fees, such as tax planning and preparation, accounting, and certain legal fees

• Unreimbursed employee business expenses, including travel, meals, entertainment and vehicle costs

But keep in mind that these expenses aren’t deductible for alternative minimum tax (AMT) purposes. So don’t bunch them into 2014 if you might be subject to the AMT. Also, if your AGI will exceed certain levels ($254,200 for singles and $305,050 for married filing jointly), be aware that your itemized deductions will be reduced.

If you’d like more information on miscellaneous itemized deductions, the AMT or the itemized deduction limit, let us know.

A taxable sale of a business might be structured as an installment sale if the buyer lacks sufficient cash or pays a contingent amount based on the business’s performance. An installment sale also may make sense if the seller wishes to spread the gain over a number of years — which could be especially beneficial if it would allow the seller to stay under the thresholds for triggering the 3.8% net investment income tax or the 20% long-term capital gains rate.

But an installment sale can backfire on the seller. For example:

• Depreciation recapture must be reported as gain in the year of sale, no matter how much cash the seller receives.
• If tax rates increase, the overall tax could wind up being more.

Please let us know if you’d like more information on installment sales — or other aspects of tax planning in mergers and acquisitions. Of course, tax consequences are only one of many important considerations.

If you have a traditional IRA, you might benefit from converting some or all of it to a Roth IRA. A conversion can allow you to turn tax-deferred future growth into tax-free growth. It also can provide estate planning advantages: Roth IRAs don’t require you to take distributions during your life, so you can let the entire balance grow tax-free over your lifetime for the benefit of your heirs.

There’s no income-based limit on who can convert to a Roth IRA. But the converted amount is taxable in the year of the conversion. Whether a conversion makes sense for you depends on factors such as:

• Your age,
• Whether the conversion would push you into a higher income tax bracket or trigger the 3.8% net investment income tax,
• Whether you can afford to pay the tax on the conversion,
• Your tax bracket now and expected tax bracket in retirement, and
• Whether you’ll need the IRA funds in retirement.

We can run the numbers and help you decide if a conversion is right for you this year.

Would you like to benefit charity while reducing the size of your taxable estate yet maintain an income stream for yourself? Would you also like to divest yourself of highly appreciated assets and diversify your portfolio with minimal tax consequences? Then consider a CRT. Here’s how it works:

• When you fund the CRT, you receive a partial income tax deduction and the property is removed from your estate.
• For a given term, the CRT pays an amount to you annually.
• At the term’s end, the CRT’s remaining assets pass to charity.

If you fund the CRT with appreciated assets, it can sell them without paying tax on the gain and then invest the proceeds in a variety of stocks and bonds. You’ll owe capital gains tax when you receive CRT payments, but much of the liability will be deferred. Plus, only a portion of each payment will be attributable to capital gains. This also may help you reduce or avoid exposure to the 3.8% net investment income tax and the 20% top long-term capital gains rate.

For more ideas on tax-smart gifts to charity, minimizing estate taxes, maintaining an income stream or diversifying your portfolio tax efficiently, contact us.

Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these two tax pitfalls:

1. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
2. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.)

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, we’d be pleased to help you assess the potential tax impact and suggest ways to minimize your tax liability.

Dear Clients and Friends:

With significant tax-related provisions of the Affordable Care Act (ACA) now affecting many taxpayers — not to mention continued uncertainty about tax reform — tax planning is more complicated yet more important than ever. To save the most, you need to understand how recent tax legislation affects you and take advantage of every tax break you’re entitled to.

This is exactly what our  Tax Planning Guide is designed to help you do. To view it, simply click on the link above to visit our website, where you can navigate to the guide and learn about important tax law changes and ways to minimize your income tax liability.

As you look through the guide, please note the strategies and tax law provisions that apply to your situation or that you would like to know more about. Then call us with any questions you may have about these or other tax matters.

At Steiner & Gelber PA, our professionals are thoroughly familiar with the latest tax laws and tax-reduction strategies, and are eager to help you take full advantage of them. So please send a reply email or call us today at to schedule a time to talk about ways to lighten your tax burden and better achieve your financial objectives.

Sincerely,

Steiner & Gelber, PA

An employer enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS considers three categories of factors related to the degree of control and independence:

1. Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?

2. Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?

3. Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

Determining the proper classification under these factors may not be easy. If you’re concerned you may have misclassified workers, please contact us.

With the gift and estate tax exemptions currently at $5.34 million, you might think that estate valuations are less important. But even if you believe that your estate’s value is under the exemption amount, it’s still important to know the value of your assets.

First, your estate might be worth more than you think. For example, if you own an insurance policy on your life, the death benefit will be included in your estate, which may be enough to trigger estate tax liability.

Second, obtaining a qualified appraisal can limit the IRS’s ability to revalue your assets. If you make gifts that exceed the $14,000 annual gift tax exclusion, you’ll need to file a gift tax return, even if the gift is within your lifetime exemption. Generally, the IRS has three years to audit gift tax returns and challenge reported values for gifted assets. But that period doesn’t begin until the gift has been “adequately disclosed.”

For assets that are difficult to value — such as closely held business interests or real estate — the best way to satisfy the adequate-disclosure requirements and avoid an IRS challenge is to include a qualified professional appraisal with your return.

Please contact us for more information on properly valuing your assets. We can help you comply with IRS requirements and keep taxes to a minimum.

Summer is a common time to put a home on the market. If you’re among those who are following this trend, it’s important to be aware of the tax consequences.

If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the Affordable Care Act’s 3.8% net investment income tax.

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

If you have a home on the market, please contact us to learn more about the potential tax consequences of a sale.

Restricted stock is stock that’s granted subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes on the stock’s fair market value at your ordinary-income rate.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the stock is likely to appreciate significantly. Why? Because it allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

There are some potential disadvantages, however:

• You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax.
• Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value.

If you’ve recently been awarded restricted stock or expect to be awarded such stock this year, work with us to determine whether the Sec. 83(b) election is appropriate for you.