2014 Tax Planning

It’s almost 2014, so it’s time to start planning for next year’s taxes.  There are a few tax changes for 2014 that will affect our “free money.”  Here they are: 

  1. The Standard Deduction (married filing jointly) will rise from $12,200 to $12,400 

  1. The Personal Exemption will increase from $3,900 to $3,950 

  1. The 10% Tax Bracket  will increase from $17,850 to $18,150   

  1. The Health Savings Account maximum for a family will increase from $6,450 to $6,550 

*Use this source to create YOUR tax plan. 
Here is our 2014 tax plan.  As you can see, the first $34,250 of income should be tax-free thanks to our standard deduction, 3 personal exemptions and 1 child tax credit.  We then add in the remaining 10% tax bracket ($18,150 – $10,000 = $8,150) since our goal is to limit our taxable income to the 10% bracket.  Ideally, our AGI for 2014 will be $42,400 since it will result in a federal income tax of $815 ($8,150 * 10%).  Finally, we add in the maximum family HSA contribution amount of $6,550 to our 2014 AGI income goal.  Since this amount will be deducted “above the line,” it will not be subject to federal income tax.  As a result, we will be able to take $48,950 in income distributions before we enter the 15% tax bracket.  By limiting our income to $48,950, we are able to pay an effective federal income tax rate of 1.66% ($815 / $48,950)!   
2014 Federal Income Tax Goals
Standard Deduction
Personal Exemptions * 3
Child Tax Credit of 1,000
Free Money
+ Remaining 10% Tax Bracket
Free Money + 10%  Tax Bracket
 + HSA Family Limit
2014 Personal Income Limit
Effective Federal Tax Rate = 1.66%
($815 / 48,950)

This year I am also making a tax plan for our Georgia income taxes.  After checking out my previous years’ tax documents, I learned that my total Georgia tax deductions are $12,000.  This amount is subtracted from our federal income tax AGI amount.  If we limit our AGI to $42,400 in 2014, we will owe $1,564 for Georgia income taxes.  This results in an effective rate of 3.69% ($1,564 / $42,400).   

GA State Income Taxes
Standard Deduction
Personal Exemptions * 2
Dependent Exemption * 1
GA 529 Deduction
Total GA Income Tax Deductions
Federal Income Tax AGI
Total GA Deductions
Taxable GA Income
Tax Math = ($30,400 * 6%) – $260
GA State Income Tax
Effective State Income Tax Rate = 3.69%
($1,564 / 42,400)
Another major tax obligation we have is the property tax on our home.  Our 2013 property tax amount was $1,739, so I use this amount in my tax planning for 2014. After adding our federal, state and property tax obligations, here are the figures for our 2014 tax plan:  

2014 Total Tax Estimate
Federal Income Tax
Georgia State Income Tax
Property Tax on Home
Total Taxes
Effective 2014 Tax Rate = 8.41%
($4,118 / $48,950)

Ideally, we will look to limit our income in 2014 to $48,950.  This amount will keep us from hitting the 15% federal income tax bracket while also keeping our Georgia state income taxes at a reasonable level.  If all goes as planned, we will pay $4,118 in federal, state and property tax in 2014 with an total effective tax rate of 8.41%.  We realize that plans do not always work out, but at least we know how our income levels determine our tax rates.      

*  Please verify your tax plan with a tax professional.  As some of my readers can attest, I am not a tax expert.  

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