Zero Emission Vehicle (ZEV) Tax Credits

The Federal tax credit is $7,500 on a new zero emission vehicle like a Nissan Leaf which is a 100% electric vehicle. The credit is calculated on form 8936. The Georgia tax credit is 20% of the cost of the new or leased vehicle to a max of $5,000.  You have to attach a ZEV certification form which you get from the dealer to your GA tax return to claim the credit. There is no federal credit carryforward; you can only use the credit against the current year tax, but Georgia allows a five year carryforward.

One Person 401k Plans for the Self Employed

The annual maximum contribution limit for 2014 is $57,500 which is composed of a $52,000 limit on 20% of self employed income up to $260,000 plus $5,500 for individuals age 50 and over. A one person 401k plan should be considered for the owner of a profitable business (sole proprieitorship) with no employees. Such a plan is not subject to the complicated nondiscrimination rules for 401k plans with employees.

Unrecaptured Section 1250 Gain Tax Rate of 25%

If you sell depreciable real estate like rental property, you have to pay tax on any gain applicable to depreciation at a rate of 25% for the federal tax return. Any capital gains on appreciation above the original cost would be taxed at a maximum rate of 20%. For example, if you sold a rental property for $50,000 that you bought for $10,000 ten years ago and that you had deducted $3,000 in depreciation up to the date of the sale, then the unrecaptured section 1250 gain of $3,000 would be taxed at 25% and the remaining gain of $40,000 would be taxed at a maximum rate of 20%. The total gain is $43,000 which is the proceeds of $50,000 minus the adjusted basis of $7,000($10,000-$3,000).

Emergency Fund

I recommend that you have 6 months worth of liquid funds to cover life's uncertainties. This should be enough cash to cover at least 6 months of living expenses. Think of it as insurance, and I bet it will help you sleep better.

Writing off Business Equipment in 2014

In 2013 you could write off up to $500,000 of the cost of business equipment under section 179 of the internal revenue code. I think that was generally enough for every small business in America to write off 100% of all equipment purchases. That nice rule went away for 2014 and is now only a low $25,000. Congress could still change the law before the end of the year, but I wouldn't count on it for tax planning purposes.