How to minimize 2014 tax

[mm0919]

Retired. Expecting to sell vacation residence this year with a capital gain of approx. 300K. Other income from ss and rmd approx 50k. Anything that can be done to lessen taxes?

Thanks.

[mwcpa]

Consider the following:

Pre-paying any state level taxes (be aware of AMT).

Do not take beyond the RMD for any pensions, if possible.

If you normally give to charity, double up in 2014.

Prepay any home real estate taxes (be aware of AMT).

Sell any "dogs" in your portfolio, be aware of wash loss rules.

Double check your cost basis in the property, make sure you included any and all capital improvements, keep track of costs incurred to prepare the home for sale (including a paint job to spruce the place up, costs to stage the home, "extra" cleaning services, etc)

[mm0919]

Thanks so much!

"Pre-paying any state level taxes (be aware of AMT)." 
    How to pre-pay state tax? Is this like paying estimated tax - after the sale is done and proceeds     received? How to estimate?  Being a resident in CT but property (just for weekends) is in NY - will     pay tax to both states ?  What is the AMT impact?

"If you normally give to charity, double up in 2014."
    Not normally give to charity - but this is a big  opportunity.  Any charity is ok?  How about giving     directly to foreign country, like Philippines, to help towns (like Tacloban) decimated by the typhoon

"Sell any "dogs" in your portfolio, be aware of wash loss rules."
    A few dogs but in IRA - even little proceeds will increase RMD.

[mwcpa]

"pay tax to both states ?"

NY will get to tax the gain as you own property there...

CT will get to tax the gain as you live there, but will give you a credit (based on a formula) for the fact you paid tax to NY on the gain, to minimize the potential of paying tax two times on one gain.

"What is the AMT impact?"

Depending on facts and circumstances, AMT, an alternative tax computation created by Congress, does not allow a deduction for state and local taxes (and other items).  One pays the higher of the regular tax computation or AMT.

"How to pre-pay state tax? Is this like paying estimated tax - after the sale is done and proceeds received? How to estimate? "

At close NY will more than likely have a "required" withholding.  Your attorney should be versed in this requirement.  The withholding is generally too much (to force you to file a tax return to claim the refund, the state is smart here).  You may want to see a professional to help determine the actual potential tax on the gain.

"Any charity is ok? How about giving directly to foreign country, like Philippines, to help towns (like Tacloban) decimated by the typhoon"

Generally, the only charity that is deductible in the US relates to gifts given to qualified charities, known as 501(c)(3) organizations.  Giving money to the Philippines may be a nice thing to do, but it is not deductible.  Giving to, merely by example, the Red Cross (a qualified US charity) for a fund they established to provide relief in the Philippines is deductible.

"A few dogs but in IRA - even little proceeds will increase RMD."

RMD is based upon fair value of an IRA, not cash in the account or sales.  Losses in an IRA are generally not allowed as a tax deduction on your personal tax filings.

I strongly suggest you seek the advise of a local qualified tax professional.... remember, a person who prepares a tax return may not have the experience or skills to plan.... the 10 week wonders (I like this term noted by another poster here) at the big box and storefronts may not be the right person, they learn the software to type in numbers, they often do not understand the nuances of the law (beyond the marketing pitches they are trained to say).

[mm0919]

Thanks so much. 

Looks like will be sizable tax.

Out of topic question please.  A friend has extremely low income; would not be required to file a return if not for little that she earns from freelance writing. She plans to have her return prepared by a VITA volunteer.  Does VITA do the schedules required for self-employed?  Are these volunteers also 10-week wonders?

[mwcpa]

"Does VITA do the schedules required for self-employed?" 

info about the eligibility for the plan www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

"Are these volunteers also 10-week wonders?"

No, these are (per the link noted above) "IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals in local communities"

[mm0919]

MW - Thanks so much! 

[TheOtherMe]

Feb 25, 2014 14:40:11 GMT -5 mm0919 said:

Out of topic question please.  A friend has extremely low income; would not be required to file a return if not for little that she earns from freelance writing. She plans to have her return prepared by a VITA volunteer.  Does VITA do the schedules required for self-employed?  Are these volunteers also 10-week wonders?

Vita volunteers are very well trained.  They go through training courses and then have to pass exams.  They can only prepare tax returns up to the level of the exams they passed.  They are very dedicated people.