Tax Changes for
2014! As the new year rolls around, it's always a sure bet
that there will be changes to the current tax law and 2014 is
no different. From health savings accounts to retirement
contributions and standard deductions, here's a checklist of
tax changes to help you plan the year ahead.
Filing Season Delayed by 10 Days
Taxpayers should note that the 2014 tax season opens on Jan.
In most years, the filing season opens on Jan. 21; however,
due to the 16-day government shutdown that took place in
October 2013, the filing season is delayed by 10 days this
year. No returns, paper or electronic, will be processed by
the IRS before this date.
The April 15 tax deadline is set by statute and will remain in
place, although taxpayers can request an automatic six-month
extension to file their tax return. If you think you need an
extension, please let us know.
For 2014, more than 40 tax provisions are affected by
inflation adjustments, including personal exemptions, AMT
exemption amounts, and foreign earned income exclusion, as
well as most retirement contribution limits.
For 2014, the tax rate structure, which ranges from 10 to 39.6
percent, remains the same as in 2013, but tax-bracket
thresholds increase for each filing status. Standard
deductions and the personal exemption have also been adjusted
upward to reflect inflation. For details see the article, "Tax
Brackets, Deductions, and Exemptions for 2014," below.
Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the
American Taxpayer Relief Act (ATRA) are indexed for inflation
and allow the use of nonrefundable personal credits against
the AMT. For 2014, the exemption amounts are $52,800 for
individuals ($51,900 in 2013) and $82,100 for married couples
filing jointly ($80,800 in 2013).
For taxable years beginning in 2014, the amount that can be
used to reduce the net unearned income reported on the child's
return that is subject to the "kiddie tax," is $1,000 (same as
2013). The same $1,000 amount is used to determine whether a
parent may elect to include a child's gross income in the
parent's gross income and to calculate the "kiddie tax". For
example, one of the requirements for the parental election is
that a child's gross income for 2014 must be more than $1,000
but less than $10,000.
For 2014, the net unearned income for a child under the age of
19 (or a full-time student under the age of 24) that is not
subject to "kiddie tax" is $2,000.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to
pay current or future medical expenses of the account owner,
his or her spouse, and any qualified dependent. Medical
expenses must not be reimbursable by insurance or other
sources and do not qualify for the medical expense deduction
on a federal income tax return.
A qualified individual must be covered by a High Deductible
Health Plan (HDHP) and not be covered by other health
insurance with the exception of insurance for accidents,
disability, dental care, vision care, or long-term care.
For calendar year 2014, a qualifying HDHP must have a
deductible of at least $1,250 for self-only coverage or $2,500
for family coverage (unchanged from 2013) and must limit
annual out-of-pocket expenses of the beneficiary to $6,350 for
self-only coverage (up $100 from 2013) and $12,700 for family
coverage (up $200 from 2013).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the
Archer MSA created to help self-employed individuals and
employees of certain small employers, and the Medicare
Advantage MSA, which is also an Archer MSA, and is designated
by Medicare to be used solely to pay the qualified medical
expenses of the account holder. To be eligible for a Medicare
Advantage MSA, you must be enrolled in Medicare. Both MSAs
require that you are enrolled in a high deductible health plan
For taxable years beginning in 2014, the term "high
deductible health plan" means, for self-only coverage, a
health plan that has an annual deductible that is not
less than $2,200 (up $50 from 2013) and not more than
$3,250 (up $50 from 2013), and under which the annual
out-of-pocket expenses required to be paid (other than
for premiums) for covered benefits do not exceed $4,350
(up $50 from 2013).
Family coverage. For
taxable years beginning in 2014, the term "high
deductible health plan" means, for family coverage, a
health plan that has an annual deductible that is not
less than $4,350 (up $50 from 2013) and not more than
$6,550 (up $100 from 2013), and under which the annual
out-of-pocket expenses required to be paid (other than
for premiums) for covered benefits do not exceed $8,000
(up $150 from 2013).
AGI Limit for Deductible Medical Expenses
In 2014, the deduction threshold for deductible medical
expenses remains at 10 percent (same as 2013, but up from 7.5
percent in 2012) of adjusted gross income (AGI); however, if
either you or your spouse were age 65 or older as of December
31, 2013, the new 10 percent of AGI threshold will not take
effect until 2017. In other words, the 7.5 percent threshold
continues to apply for tax years 2013 to 2016 for these
individuals. In addition, if you or your spouse turns age 65
in 2014, 2015, or 2016, the 7.5 percent of AGI threshold
applies for that year through 2016 as well. Starting in 2017,
the 10 percent of AGI threshold applies to everyone.
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health
care premiums and are deductible on your taxes subject to
certain limitations. For individuals age 40 or younger at the
end of 2014, the limitation is $370. Persons more than 40 but
not more than 50 can deduct $700. Those more than 50 but not
more than 60 can deduct $1,400, while individuals more than 60
but not more than 70 can deduct $3,720. The maximum deduction
$4,660 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above
$200,000 for individuals ($250,000 married filing jointly),
which became effective last year, in 2013, remains in effect
for 2014, as does the Medicare tax of 3.8 percent on
investment (unearned) income for single taxpayers with
modified adjusted gross income (AGI) more than $200,000
($250,000 joint filers). Investment income includes dividends,
interest, rents, royalties, gains from the disposition of
property, and certain passive activity income. Estates, trusts
and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2014, the foreign earned income exclusion amount is
$99,200, up from $97,600 in 2013.
Long-Term Capital Gains and Dividends
In 2014 tax rates on capital gains and dividends remain the
same as 2013 rates; however threshold amounts are indexed for
inflation. As such, for taxpayers in the lower tax brackets
(10 and 15 percent), the rate remains 0 percent. For taxpayers
in the four middle tax brackets, 25, 28, 33, and 35 percent,
the rate is 15 percent. For an individual taxpayer in the
highest tax bracket, 39.6 percent, whose income is at or above
$406,750 ($457,600 married filing jointly), the rate for both
capital gains and dividends is capped at 20 percent.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP
(personal exemption phase-out) have been permanently extended
(and indexed to inflation) for taxable years beginning after
December 31, 2012, and in 2014, affect taxpayers with income
at or below $254,200 for single filers and $305,050 for
married filing jointly.
Estate and Gift Taxes
For an estate of any decedent during calendar year 2014, the
basic exclusion amount is $5,340,000, indexed for inflation
(up from $5,250,000 2013). The maximum tax rate remains at 40
percent. The annual exclusion for gifts also remains at
Individuals - Tax Credits
In 2014, a non-refundable (only those individuals with tax
liability will benefit) credit of up to $13,190 is available
for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2014, the maximum earned income tax credit (EITC)
for low and moderate income workers and working families rises
to $6,143, up from $6,044 in 2013. The credit varies by family
size, filing status and other factors, with the maximum credit
going to joint filers with three or more qualifying children.
Child Tax Credit
For tax year 2014, the child tax credit is $1,000 per child.
Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as
being under the age of 13 at the end of the tax year or
incapable of self-care) in order to work or look for work, you
may qualify for a credit of up to $1,050 or 35 percent of
$3,000 of eligible expenses in 2014. For two or more
qualifying dependents, you can claim up to 35 percent of
$6,000 (or $2,100) of eligible expenses. For higher income
earners the credit percentage is reduced, but not below 20
percent, regardless of the amount of adjusted gross income.
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning
The American Opportunity Tax Credit (formerly Hope Scholarship
Credit) was extended to the end of 2017 by ATRA. The maximum
credit is $2,500 per student. The Lifetime Learning Credit
remains at $2,000 per return.
Interest on Educational Loans
In 2014 (as in 2013), the $2,500 maximum deduction for
interest paid on student loans is no longer limited to
interest paid during the first 60 months of repayment. The
deduction is phased out for higher-income taxpayers with
modified AGI of more than $65,000 ($130,000 joint filers).
The elective deferral (contribution) limit for employees who
participate in 401(k), 403(b), most 457 plans, and the federal
government's Thrift Savings Plan remains unchanged at $17,500.
Contribution limits for SIMPLE plans remains unchanged at
$12,000. The maximum compensation used to determine
contributions increases to $260,000 (up $5,000 from 2013).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a
traditional IRA is phased out for singles and heads of
household who are covered by an employer-sponsored retirement
plan and have modified AGI between $60,000 and $70,000, up
from $59,000 and $69,000 in 2013.
For married couples filing jointly, in which the spouse who
makes the IRA contribution is covered by an employer-sponsored
retirement plan, the phase-out range is $96,000 to $116,000,
up from $95,000 to $115,000. For an IRA contributor who is not
covered by an employer-sponsored retirement plan and is
married to someone who is covered, the deduction is phased out
if the couple's modified AGI is between $181,000 and $191,000,
up from $178,000 and $188,000.
The modified AGI phase-out range for taxpayers making
contributions to a Roth IRA is $181,000 to $191,000 for
married couples filing jointly, up from $178,000 to $188,000
in 2013. For singles and heads of household, the income
phase-out range is $114,000 to $129,000, up from $112,000 to
$127,000. For a married individual filing a separate return
who is covered by a retirement plan, the phase-out range
remains $0 to $10,000.
In 2014, the AGI limit for the saver's credit (also known as
the retirement savings contribution credit) for low and
moderate income workers is $60,000 for married couples filing
jointly, up from $59,000 in 2013; $45,000 for heads of
household, up from $44,250; and $30,000 for married
individuals filing separately and for singles, up from
Standard Mileage Rates
The rate for business miles driven is 56 cents per mile for
2014, down from 56.5 cents per mile in 2013.
Section 179 Expensing
For 2014 the maximum Section 179 expense deduction for
equipment purchases decreases to $25,000 of the first $200,000
of business property placed in service during 2014. The bonus
depreciation of 50 percent is gone, as is the accelerated
deduction, where businesses can expense the entire cost of
qualified real property in the year of purchase.
Transportation Fringe Benefits
If you provide transportation fringe benefits to your
employees, in 2014 the maximum monthly limitation for
transportation in a commuter highway vehicle as well as any
transit pass is $130 down from $245 in 2013. The monthly
limitation for qualified parking is $250.
While this checklist outlines important tax changes for 2014,
additional changes in tax law are more than likely to arise
during the year ahead.
Don't hesitate to call us if you want to get an early start on
tax planning for 2014. We're here to help!
SMEED CPA Adds Financial
Services To Help Clients With
Investments & Insurance
often we here at SMEED CPA are asked about financial issues
that impact our clients investments and their portfolios.
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SMEED Financial will include Michael Uadiale,
ACA, CPA, CGMA; and Pablo Blanco who has
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financial sales and advising experience with affluent
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on services SMEED Financial Services, Inc will make available
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