Three Financial Moves Dentists Can Make Going Into 2015Submitted by Creative Wealth Strategies on December 9th, 2014
As we approach the end of the year, now is the time to plan your financial, business and life priorities…oh and of course this is tax planning time! Here are three potential moves I think will help you going into 2015. When it comes to tax matters, it’s definitely a good idea to check with your CPA or tax professional.
#1 For Those Charitable Minded
If you make your charitable gift before January 1, 2015 you can claim the deduction on your 2014 return; provided you itemize your 2014 deductions with Schedule A. Make sure you have documentation…this is where those receipts stuffed in a shoebox come in handy!1
If you give cash, you need to document it. Personally, I often forget to do this for small contributions, but even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount.
Gift appreciated securities (stocks) -- please verify this with your CPA but if you have stocks you’ve owned for more than a year, you could be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from you selling the stocks and then donating the proceeds.
Important note: if your stock(s) is a down in value, I recommend you sell it and then donate the money so you can claim a loss on the sale and deduct a charitable contribution equivalent to the proceeds.2
Please remember that if the value of your gift to a qualified charitable organization exceeds $250, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.3
If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.
#2 Contribute to a Retirement Plan
If you own a dental practice and don’t have a retirement plan, look into whether you can still establish and fund a plan before the end of the year. For 2014, you can contribute up to $17,500 into a 401(k), or profit-sharing plan, with a $5,500 catch-up contribution if you are age 50 or older.
Also, a 2014 contribution to a Roth or traditional IRA can be made as late as April 15, 2015; if you have a SEP IRA and file Form 4868, you can wait until October 15, 2015. If possible don’t delay your contribution so you can benefit from the tax-advantaged compounding of your money.4,5
In 2015 you can contribute up to $5,500 to a Roth or traditional IRA if you are age 49 or younger, and up to $6,500 if you are age 50 and older (though your MAGI may affect how much you can put into a Roth IRA).4
It’s important to note that there are the income limits on deducting traditional IRA contributions. For example, if you participate in a dental office retirement plan, the 2015 MAGI phase-out ranges are $61,000-71,000 for singles and heads of households, $98,000-118,000 for married couples filing jointly when the spouse making IRA contributions is covered by a workplace retirement plan, and $183,000-193,000 for an IRA contributor who is not covered by a workplace retirement plan but is married to someone who is.4
In some situations a Roth IRA is a better option instead of a traditional IRA. If you are a high earning dentist, you should know that MAGI phase-out limits affect Roth IRA contributions. For 2014, phase-outs kick in at $183,000 for joint filers and $116,000 for single filers. Should your MAGI prevent you from contributing to a Roth IRA at all, you always have the chance to contribute to a traditional IRA in 2014 and then convert it to a Roth.4
Another important footnote: distributions from Roth IRAs, traditional IRAs and qualified retirement plans such as 401(k)s are not subject to the 3.8% Medicare surtax affecting single/joint filers with AGIs over $200,000/$250,000. Dividends, net investment income from taxable interest, passive rental income, annuity income, short-term and long-term capital gains and royalties are subject to that surtax if your AGI surpasses those respective thresholds.6
Don’t Forget RMDs
If you are a retired dentists and older than 70½, remember your RMD. Retirees over age 70½ must take Required Minimum Distributions from traditional IRAs and 401(k), and profit-sharing plans by December 31. The IRS penalty for failing to take an RMD equals 50% of the RMD amount.7
If you have turned 70½ in 2014, you can postpone your first IRA RMD until April 1, 2015. The downside of that is that you will have to take two IRA RMDs next year, both taxable events – you will have to make your 2014 tax year withdrawal by April 1, 2015 and your 2015 tax year withdrawal by December 31, 2015.6
I highly encourage you to plan your RMDs wisely so you can limit or avoid possible taxes on your Social Security income. Some dentists receiving Social Security don’t know about the “provisional income” rule – if your modified AGI plus 50% of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable. Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.7
Please consult a CPA or financial advisor before you make any IRA moves to see how they may affect your overall financial picture.
#3 Open a HSA
One of the best decisions I’ve made is opening a HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account (HSA) in 2015. You can make fully tax-deductible HSA contributions of up to $3,350 (singles) or $6,650 (married couples); catch-up contributions of up to $1,000 are permitted for those 55 or older who aren’t yet enrolled in Medicare.
Another reason why I like HSAs is the assets grow tax deferred and withdrawals are tax-free if used to pay for qualified health care expenses. Occasionally you’ll hear HSAs referred to as “backdoor IRAs,” because once you reach age 65, you may take withdrawals for any purpose, however these withdrawals will be taxed if they aren’t used to pay for qualified medical expenses.8
I hope you’ve found this information…please leave any questions or comments you have below.
1 - forbes.com/sites/mikepatton/2014/11/25/year-end-charitable-tax-tips/ [11/25/14]
2 - philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]
3 - irs.gov/uac/Nine-Tips-for-Charitable-Taxpayers [1/16/14]
4 - irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015 [10/23/14]
5 - turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1--2015/INF12070.html [12/2/14]
6 - irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14]
7 - socialsecurity.gov/planners/taxes.htm [12/2/14]
8 - tinyurl.com/lqw4pkq [10/11/14]
For tax advice, please consult your tax professional.